Legislature(2013 - 2014)SENATE FINANCE 532

04/08/2014 01:30 PM FINANCE


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01:46:34 PM Start
01:48:09 PM HB263
01:55:27 PM HB278
01:55:27 PM Presentation: Education Funding
03:23:05 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentation: Education Funding TELECONFERENCED
+ Bills Previously Heard/Scheduled TELECONFERENCED
                 SENATE FINANCE COMMITTEE                                                                                       
                       April 8, 2014                                                                                            
                         1:46 p.m.                                                                                              
                                                                                                                                
1:46:34 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Meyer called the Senate Finance Committee meeting                                                                      
to order at 1:46 p.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Pete Kelly, Co-Chair                                                                                                    
Senator Kevin Meyer, Co-Chair                                                                                                   
Senator Anna Fairclough, Vice-Chair                                                                                             
Senator Click Bishop                                                                                                            
Senator Mike Dunleavy                                                                                                           
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Representative   Mike   Hawker;    David   Teal,   Director,                                                                    
Legislative Finance Division; Michael Hanley, Commissioner,                                                                     
Department of Education and Early Development.                                                                                  
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
CSHB 263(HSS)                                                                                                                   
          EXTEND SENIOR BENEFITS PAYMENT PROGRAM                                                                                
                                                                                                                                
          CSHB 263(HSS) was HEARD and HELD in committee for                                                                     
          further consideration.                                                                                                
                                                                                                                                
CSHB 278(FIN)am                                                                                                                 
          EDUCATION: FUNDING/TAX CREDITS/PROGRAMS                                                                               
                                                                                                                                
          CSHB 278(FIN)am was HEARD and HELD in committee                                                                       
          for further consideration.                                                                                            
                                                                                                                                
PRESENTATION: EDUCATION FUNDING                                                                                                 
                                                                                                                                
CS FOR HOUSE BILL NO. 263(HSS)                                                                                                
                                                                                                                                
     "An Act extending the Alaska senior benefits payment                                                                       
     program."                                                                                                                  
                                                                                                                                
1:48:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MIKE  HAWKER, explained the  legislation. The                                                                    
legislation would extend the  Alaska senior benefits payment                                                                    
program. He stated that the  program was slated to sunset on                                                                    
June  30, 2013,  and  the  bill would  move  the sunset  six                                                                    
years. The  program paid  benefits to  seniors who  had very                                                                    
low or moderate  income. The benefits had  three levels, and                                                                    
were determined  by the individuals' standings  with regards                                                                    
to  the  federal poverty  level  as  an index.  The  monthly                                                                    
benefits could be  $250 per month for someone who  was at 75                                                                    
percent of  the federal  poverty level;  $175 per  month for                                                                    
someone at  100 percent  of the  federal poverty  level; and                                                                    
$125 per  month for  someone at 175  percent of  the federal                                                                    
poverty level.                                                                                                                  
                                                                                                                                
Co-Chair  Meyer wondered  if the  bill originated  after the                                                                    
Longevity  Bonus  Program   was  eliminated.  Representative                                                                    
Hawker  replied in  the affirmative.  He explained  that the                                                                    
Longevity  Bonus Program  was  eliminated in  2003, and  was                                                                    
replaced  by a  short-lived senior  assistance program  that                                                                    
existed for one  year in 2004. Another  program, "The Senior                                                                    
Care Program" also  failed. He explained that  he had worked                                                                    
with the Mental  Health Trust to design  the current program                                                                    
with the intent that it  would be a durable and long-lasting                                                                    
program. He felt that it  reached the intended beneficiaries                                                                    
as effectively and efficiently as possible.                                                                                     
                                                                                                                                
Co-Chair Meyer agreed that the program was very effective.                                                                      
                                                                                                                                
Co-Chair Kelly looked  at the second page  of the Department                                                                    
of Health and Social Services  (DHSS) fiscal note, and noted                                                                    
that  analysis showed  a different  payment  than the  other                                                                    
fiscal notes.                                                                                                                   
                                                                                                                                
1:51:40 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
1:51:57 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
                                                                                                                                
Co-Chair Kelly rescinded his question.                                                                                          
                                                                                                                                
Co-Chair  Meyer   queried  the  reason  for   the  six  year                                                                    
extension.  Representative Hawker  replied  that there  were                                                                    
already two  three year terms  of the program. He  felt that                                                                    
the program  has proven  its ability  to reach  the intended                                                                    
beneficiary population.  He stressed that  the beneficiaries                                                                    
were   Alaska's   most   impoverished  seniors,   and   most                                                                    
vulnerable  populations,   he  hoped   that  the   six  year                                                                    
extension  would give  those  individuals  some comfort  and                                                                    
durability of the program.                                                                                                      
                                                                                                                                
Co-Chair  Meyer wondered  why the  fiscal note  reflected an                                                                    
increase  of 2.8  percent.  Representative Hawker  responded                                                                    
that  the   program  was  growing,  and   the  annual  grant                                                                    
expenditures also were expected to grow.                                                                                        
                                                                                                                                
Co-Chair Meyer CLOSED public testimony.                                                                                         
                                                                                                                                
CSHB 263(HSS)  was HEARD and  HELD in committee  for further                                                                    
consideration.                                                                                                                  
                                                                                                                                
CS FOR HOUSE BILL NO. 278(FIN) am                                                                                             
                                                                                                                                
     "An Act increasing the base  student allocation used in                                                                    
     the  formula for  state  funding  of public  education;                                                                    
     relating  to  the  exemption   from  jury  service  for                                                                    
     certain  teachers;  relating  to   the  powers  of  the                                                                    
     Department   of   Education  and   Early   Development;                                                                    
     relating to  high school  course credit  earned through                                                                    
     assessment;  relating  to school  performance  reports;                                                                    
     relating to  assessments; establishing a  public school                                                                    
     and  school   district  grading  system;   relating  to                                                                    
     charter  schools and  student transportation;  relating                                                                    
     to residential school  applications; relating to tenure                                                                    
     of  public school  teachers;  relating to  unemployment                                                                    
     contributions for  the Alaska technical  and vocational                                                                    
     education  program;  relating  to earning  high  school                                                                    
     credit for  completion of vocational  education courses                                                                    
     offered   by  institutions   receiving  technical   and                                                                    
     vocational  education  program   funding;  relating  to                                                                    
     schools  operated by  a federal  agency; relating  to a                                                                    
     grant for  school districts; relating to  education tax                                                                    
     credits;   establishing  an   optional  municipal   tax                                                                    
     exemption for  privately owned real property  rented or                                                                    
     leased  for  use as  a  charter  school; requiring  the                                                                    
     Department of Administration to  provide a proposal for                                                                    
     a salary  and benefits  schedule for  school districts;                                                                    
     making  conforming  amendments;  and providing  for  an                                                                    
     effective date."                                                                                                           
                                                                                                                                
1:55:27 PM                                                                                                                    
                                                                                                                                
^PRESENTATION: EDUCATION FUNDING                                                                                              
                                                                                                                                
1:55:27 PM                                                                                                                    
                                                                                                                                
DAVID   TEAL,   DIRECTOR,  LEGISLATIVE   FINANCE   DIVISION,                                                                    
discussed  the presentation,  "Funding  Public Education  in                                                                    
Alaska" (copy on file). He  stated that the amount that each                                                                    
school  receives and  the  amount of  money  that the  state                                                                    
allocates for education were two different things.                                                                              
                                                                                                                                
Mr. Teal looked at slide 2, "C1: Statutory Base Student                                                                         
Allocation (BSA)."                                                                                                              
                                                                                                                                
     The  BSA  is  sometimes  used  as  a  measure  of  K-12                                                                    
     funding.  While  the BSA  is  a  major factor  in  K-12                                                                    
     funding, it is not  a valid stand-alone measure because                                                                    
     the  foundation  formula  includes  adjustment  factors                                                                    
     that have changed over time.                                                                                               
                                                                                                                                
     The formula for K-12 funding is:                                                                                           
     Basic Need=Student Count  (ADM) with Adjustment Factors                                                                    
     BSA                                                                                                                        
                                                                                                                                
Mr. Teal highlighted slide 3, "C2: Converting Head Count to                                                                     
Students that are Funded."                                                                                                      
                                                                                                                                
     Adjustment factors - for  school size, geographic needs                                                                    
     students,  vocational  education   and  others  -  have                                                                    
     changed over time, especially since FY 08.                                                                                 
                                                                                                                                
     Because  funding depends  on adjusted  ADM (AADM),  the                                                                    
     conversion from AND  to AADM is a critical  part of the                                                                    
     funding formula.                                                                                                           
                                                                                                                                
     As shown in  the graph, the student  count (for funding                                                                    
     purposes) was 1.6 times the head  count in FY 04. In FY                                                                    
     14, the  student count (for  funding purposes)  was 1.6                                                                    
     times the head count.                                                                                                      
                                                                                                                                
     Note  that ADM  has  remained at  roughly 130,000  over                                                                    
     time,  but  that AADM  has  increased  from 210,000  to                                                                    
     247,000. At  any given  BSA, a  higher AADM  means more                                                                    
     money.                                                                                                                     
                                                                                                                                
2:00:14 PM                                                                                                                    
                                                                                                                                
Mr. Teal addressed slide 4, "CS: BSA Adjusted for Factor                                                                        
Changes."                                                                                                                       
                                                                                                                                
     Mathematically,  applying an  adjustment factor  to the                                                                    
     student count  is identical to  applying the  factor to                                                                    
     the BSA.                                                                                                                   
                                                                                                                                
     $5,680*(1.9*130,000)=($5,680*1.9)*130,000                                                                                  
                                                                                                                                
     In this  graph, the  ADM-to-AADM adjustment  factor has                                                                    
     been applied to the BSA.                                                                                                   
                                                                                                                                
     The graph  shows what  the BSA would  have been  if the                                                                    
     factor  for converting  the ADM  to AADM  in FY  13 had                                                                    
     applied to all years.                                                                                                      
                                                                                                                                
     The  adjusted  BSA in  this  graph  can  be used  as  a                                                                    
     starting point for comparing K-12 funding over time.                                                                       
                                                                                                                                
Mr. Teal spoke to slide 5, "C4: Adjusted BSA in FY 13                                                                           
Dollars."                                                                                                                       
                                                                                                                                
     When  comparing expenditures  over time,  adjusting for                                                                    
     inflation   provides  a   more  useful   assessment  of                                                                    
     effective funding levels.                                                                                                  
                                                                                                                                
     In  contrast   to  Graph   3,  which   showed  constant                                                                    
     increases in the  Adjusts GBSA since FY  08, this graph                                                                    
     shows that inflation  has eroded the real  value of the                                                                    
     Adjusted BSA since FY 11.                                                                                                  
                                                                                                                                
     This   graph  is   the  base   to  which   other  state                                                                    
     expenditures   for  K-12   education  are   added.  All                                                                    
     additional expenditures  have been converted to  a "BSA                                                                    
     equivalent"  at  the  rate of  approximately  $100  BSA                                                                    
     increase for each $23 million spent.                                                                                       
                                                                                                                                
Mr. Teal looked at slide 6, "C5: K-12 Expenditures per AADM                                                                     
(in FY 13 $)."                                                                                                                  
                                                                                                                                
     Pupil transportation is a  formula funded activity that                                                                    
     fell from  a BSA equivalent of  $321 in FY 04  to a low                                                                    
    of $263 in FY 12. It was boosted to $300 in FY 13.                                                                          
                                                                                                                                
2:04:33 PM                                                                                                                    
                                                                                                                                
Mr. Teal highlighted slide 7, "C6: K-12 Expenditures per                                                                        
AADM (in FY 13 $)."                                                                                                             
                                                                                                                                
     One-time   funding   (distributed  according   to   the                                                                    
     foundation  formula)   has  often   been  used   as  an                                                                    
     alternative to formula increases.                                                                                          
                                                                                                                                
Mr. Teal addressed slide 8, "C7: K-12 Expenditures per AADM                                                                     
(in FY 13 $)."                                                                                                                  
                                                                                                                                
     Capital Budget  grants are grants for  items that would                                                                    
     normally  be  expected  to be  paid  for  with  formula                                                                    
     funds.                                                                                                                     
                                                                                                                                
     They have  increased substantially in recent  years, as                                                                    
     they  typically do  when  other  funding is  relatively                                                                    
     flat.                                                                                                                      
                                                                                                                                
     The  FY  14 budget  contains  $21  million for  capital                                                                    
     projects  associated with  student safety  and security                                                                    
     enhancements or  for fixed costs  and energy  relief to                                                                    
     smaller schools.                                                                                                           
                                                                                                                                
Mr. Teal looked at slide 9, "C8: K-12 Expenditures per AADM                                                                     
(in FY 13 $)."                                                                                                                  
                                                                                                                                
     Department  of Education  and Early  Development (DEED)                                                                    
     operating expenses  for K-12  include state  funds that                                                                    
     are awarded as grants to school districts.                                                                                 
                                                                                                                                
     This  source   of  funding  for  school   districts  is                                                                    
     expected to increase because  targeted grants provide a                                                                    
     way to achieve specific goals  at a lower cost and with                                                                    
     greater  certainty  than   increasing  the  BSA.  Money                                                                    
     allocated  via formula  cannot be  targeted to  achieve                                                                    
     specific objectives.                                                                                                       
                                                                                                                                
Mr. Teal highlighted slid 10, "C9: K-12 Expenditures per                                                                        
AADM (in FY 13 $)."                                                                                                             
                                                                                                                                
     The state deposits money in retirement trust accounts                                                                      
     on behalf of school districts.                                                                                             
                                                                                                                                
     Although the money does not benefit employees directly                                                                     
     and cannot be used for other purposes, retirement                                                                          
     assistance is a cost of providing K-12 education.                                                                          
                                                                                                                                
Mr. Teal address slide 11,  "C10: K-12 Expenditures per AADM                                                                    
(in FY 13 $)."                                                                                                                  
                                                                                                                                
     The state pays a large portion of school construction                                                                      
     and major maintenance costs.                                                                                               
                                                                                                                                
     Although some argue that capital costs do not appear                                                                       
     "in the classroom", the costs are incurred by the                                                                          
     state as a necessary part of providing K-12 education.                                                                     
                                                                                                                                
Mr.  Teal looked  at slide  12, "General  Fund Appropriation                                                                    
for  K12 Education."  The slide  displayed exactly  what was                                                                    
spent in  dollars, which showed  that education  funding had                                                                    
increased.  He   stressed  that  the  student   account  was                                                                    
declining, so the slide understated  school funding on a per                                                                    
student basis. He felt that  increases to school funding was                                                                    
in pace with inflation.                                                                                                         
                                                                                                                                
2:08:55 PM                                                                                                                    
                                                                                                                                
Mr.   Teal   presented   a  spreadsheet   titled,   "FY   15                                                                    
Projections--Converting Student Head  Count to Adjusted ADM"                                                                    
(copy  on  file).   He  stated  that  the   formula  on  the                                                                    
spreadsheet converted  the student  head count to  adjust at                                                                    
ADM.  The  spreadsheet  addressed  some  federal  and  local                                                                    
funding.  He felt  that the  formula was  not mathematically                                                                    
complex,  but every  factor affected  districts differently.                                                                    
The  policy decisions  with  education  funding were  always                                                                    
complex.  The politics  of determining  the allocated  funds                                                                    
per district was the difficult  part of the process. The way                                                                    
money  was generated  had little  to do  with how  the money                                                                    
must  be spent.  School districts  were free  to move  money                                                                    
around  to different  schools, and  to spend  money as  they                                                                    
wish. All  of the  levers in the  formula work  together, so                                                                    
increasing one lever may have more  of an impact in one area                                                                    
than was anticipated.                                                                                                           
                                                                                                                                
2:13:43 PM                                                                                                                    
                                                                                                                                
Co-Chair  Meyer  remarked  that there  had  been  discussion                                                                    
regarding the formula. He wondered  why the formula was such                                                                    
that a  student at  a larger high  school would  not receive                                                                    
the same  amount of  money as  a student  in a  smaller high                                                                    
school. Mr. Teal responded that  education in a small school                                                                    
was  more   expensive  than  the  economies   of  scale.  He                                                                    
explained  that there  were various  factors that  went into                                                                    
how the money was distributed.                                                                                                  
                                                                                                                                
Senator Olson  shared that there  were also  extreme heating                                                                    
costs  in  some  smaller  districts,   which  added  to  the                                                                    
disparity in school district funds across the state.                                                                            
                                                                                                                                
Co-Chair Meyer  wondered if there  were some  adjustments in                                                                    
the cost of living differences  in the various areas in 2008                                                                    
or  2009. Mr.  Teal replied  in the  affirmative. He  stated                                                                    
that there  was an  education task  force that  offered some                                                                    
recommendations, which he believed were fully implemented.                                                                      
                                                                                                                                
2:18:29 PM                                                                                                                    
                                                                                                                                
Senator Hoffman  stressed that the  other body  removed some                                                                    
cost of living  differentials, so that provision  was not in                                                                    
the current  version. Mr. Teal  agreed. The  provision would                                                                    
have  removed the  top two  brackets from  the size  factor,                                                                    
which would have  increased the student count  in the larger                                                                    
high  schools. There  would have  been  a gain  of over  100                                                                    
students  in the  student count,  but he  stressed that  the                                                                    
provision  had been  removed  from the  bill.  He felt  that                                                                    
changing  the formula  without examining  all aspects  could                                                                    
have  unforeseen consequences.  He announced  that education                                                                    
had changed, so the funding should also change.                                                                                 
                                                                                                                                
Co-Chair Meyer  felt that there had  been consistent changes                                                                    
to the funding formula since  1997. He stated that there had                                                                    
been a  local mil-rate adjustment, which  reduced the amount                                                                    
of  municipality contributions.  Mr.  Teal  agreed that  the                                                                    
mil-rate  had recently  changed. He  stated that  the reason                                                                    
for  the  change was  because  the  mil-rate was  declining.                                                                    
Therefore, the  adjustment forced the mil-rate  to remain at                                                                    
a certain level.                                                                                                                
                                                                                                                                
Co-Chair  Meyer wondered  if the  mil-rate was  at 2.9.  Mr.                                                                    
Teal  replied that  the mil-rate  was four  full mils.  Over                                                                    
fifteen years  it had dropped  to 4.65, because there  was a                                                                    
limit on counting property value increases.                                                                                     
                                                                                                                                
Co-Chair  Meyer  agreed  that  there  should  be  discussion                                                                    
regarding  adjusting the  formula  at any  level. He  argued                                                                    
that the larger schools  faced greater problems than smaller                                                                    
schools. He  announced that some  high schools  in Anchorage                                                                    
had armed police in the schools.  Mr. Teal agreed.                                                                              
                                                                                                                                
Mr.  Teal continued  to discuss  the spreadsheet.  The slide                                                                    
highlighted   each  district.   The  size   factor  affected                                                                    
different districts  in distinct ways. He  remarked that the                                                                    
Aleutian School  had 31 students,  but those  students would                                                                    
be counted as 79 students  after they were considered in the                                                                    
size  formula. He  stated  that Anchorage  would  face a  10                                                                    
percent increase in student size  in the formula, because it                                                                    
had larger schools  so the size factor would  not count them                                                                    
as  highly   as  the  smaller  schools.   He  addressed  the                                                                    
geographic  factor  in the  formula,  which  was changed  in                                                                    
2006. The  factor now compensated  better for  the differing                                                                    
operating costs  across the state. Anchorage  was considered                                                                    
the base,  so it received  no additional student  count. The                                                                    
highest  geographic factor  was 2.12,  which meant  that the                                                                    
student  count  was basically  doubled.  He  noted that  the                                                                    
Aleutians had a  1.9 factor, so their count  would grow from                                                                    
79  students to  154 students.  The total  impact would  add                                                                    
28,000 students  to the formula  at a cost of  $160 million.                                                                    
He looked at  the special needs and career  factors. He felt                                                                    
that  these factors  were odd,  because the  purpose of  the                                                                    
various  factors in  the formula  were meant  to adjust  for                                                                    
differences from one district  to another. The factors would                                                                    
give each school  the same amount. He felt  that the special                                                                    
needs  factor  could  be  removed,   so  the  BSA  could  be                                                                    
increased by 20 percent.                                                                                                        
                                                                                                                                
2:24:49 PM                                                                                                                    
                                                                                                                                
Co-Chair  Kelly wondered  if an  increase to  the BSA  would                                                                    
have the same  impact. Mr. Teal responded  that BSA increase                                                                    
would multiply students.                                                                                                        
                                                                                                                                
Co-Chair  Kelly  asked  for further  explanation.  Mr.  Teal                                                                    
replied that there were 31  students in the Aleutian School.                                                                    
After adjusting for size, the  count changed to 79 students.                                                                    
The geographic  differential would then change  the count to                                                                    
154 students. Then there would  be an addition of 20 percent                                                                    
with the  special needs  factor, which would  be to  184. He                                                                    
stressed that  multiplying the student  count by  the dollar                                                                    
amount  would have  a greater  impact  than multiplying  the                                                                    
student amount.                                                                                                                 
                                                                                                                                
Senator  Dunleavy surmised  that  the  special needs  factor                                                                    
could be eliminated and replaced  with a BSA increase, which                                                                    
would  yield  a similar  result.  Mr.  Teal replied  in  the                                                                    
affirmative.                                                                                                                    
                                                                                                                                
Senator Dunleavy  wondered if the  special needs  column was                                                                    
retained  for  political reasons.  Mr.  Teal  felt that  the                                                                    
summation was fairly accurate.                                                                                                  
                                                                                                                                
Senator  Dunleavy asked  why the  column  was retained.  Mr.                                                                    
Teal responded that  he did not know. He  explained that the                                                                    
factors  in  the formula  were  designed  to compensate  for                                                                    
differences.                                                                                                                    
                                                                                                                                
Senator Dunleavy  wondered if the following  column could be                                                                    
removed. Mr. Teal jokingly agreed.                                                                                              
                                                                                                                                
Senator  Dunleavy felt  that other  columns could  be added,                                                                    
but the  results would remain  the same  at 2.0 or  1.5. Mr.                                                                    
Teal  replied that  the formula  was not  as easy  as simply                                                                    
focusing on the BSA.                                                                                                            
                                                                                                                                
Senator Hoffman  wondered how much  the BSA  would increase,                                                                    
if  the  special  needs  factor  was  eliminated.  Mr.  Teal                                                                    
replied  that  removing  the   special  needs  column  would                                                                    
decrease the funding by $198  million, which would allow for                                                                    
an approximate BSA increase of roughly $1000.                                                                                   
                                                                                                                                
2:29:28 PM                                                                                                                    
                                                                                                                                
Senator  Hoffman surmised  that  the removal  of the  column                                                                    
would increase  the BSA, while  keeping the  formula intact.                                                                    
Mr. Teal replied in the  affirmative and furthered that some                                                                    
districts would lose  money with the removal  of the special                                                                    
needs column.  He stressed  that all  of the  factors worked                                                                    
together, but  changing the  formula affected  the districts                                                                    
differently.                                                                                                                    
                                                                                                                                
Co-Chair Kelly stressed that removing  the 20 percent, while                                                                    
increasing the BSA would not be a good choice.                                                                                  
                                                                                                                                
Co-Chair  Meyer  asked if  Senator  Dunleavy  would like  to                                                                    
increase  the  BSA  to  $1000.  Senator  Dunleavy  joked  in                                                                    
response.                                                                                                                       
                                                                                                                                
Co-Chair  Meyer  wondered if  the  complex  formula was  the                                                                    
reason that there  was funding outside of the  BSA. Mr. Teal                                                                    
replied  that the  BSA was  the  easiest way  to adjust  the                                                                    
formula,  because  every district  would  gain  by the  same                                                                    
percent.   Adjusting   other   factors  would   change   the                                                                    
percentage gains in each district.                                                                                              
                                                                                                                                
Co-Chair  Meyer  wondered  if special  needs  students  were                                                                    
counted as five  times the BSA, and  intensity students were                                                                    
counted as up  to 13 times the BSA. Mr.  Teal responded that                                                                    
the special  needs students were previous  calculated in the                                                                    
same  way that  intensive students  were counted.  Intensive                                                                    
needs  students were  inserted into  the formula,  which was                                                                    
when  the special  needs column  became 20  percent. Special                                                                    
needs did not  add a particular amount,  but intensive needs                                                                    
student  was   counted  as  13  students,   which  increased                                                                    
funding.  He  remarked that  the  Aleutian  East School  had                                                                    
three intensive  needs students,  which counted as  39 total                                                                    
students.                                                                                                                       
                                                                                                                                
Senator Dunleavy queried the problem  with the special needs                                                                    
formula. Mr. Teal replied that he  did not think there was a                                                                    
problem                                                                                                                         
                                                                                                                                
2:35:04 PM                                                                                                                    
                                                                                                                                
Senator   Dunleavy  queried   the  problem   with  education                                                                    
funding. Mr. Teal responded that  the districts believe that                                                                    
they were not receiving enough money.                                                                                           
                                                                                                                                
Senator  Bishop looked  at the  intensive needs  column, and                                                                    
wondered if the rural  communities' intensive needs students                                                                    
would be  counted as  13 students.  Mr. Teal  responded that                                                                    
intensive needs students would be  counted as 13 students in                                                                    
every community.                                                                                                                
                                                                                                                                
Co-Chair  Meyer felt  that the  intensive needs  students in                                                                    
the larger  schools received less  money than  the intensive                                                                    
needs  students in  the rural  schools.  Mr. Teal  responded                                                                    
that it  was all  based on  the end  result in  the formula,                                                                    
based on the other factors.                                                                                                     
                                                                                                                                
Senator Hoffman  remarked that all school  districts were in                                                                    
a position to  change the funding. He  remarked that heating                                                                    
costs  could not  be cut  across the  state. Every  district                                                                    
faced  elimination of  teachers, which  increased the  class                                                                    
size.  He reiterated  that it  was a  statewide problem.  He                                                                    
noted  that the  major maintenance  and school  construction                                                                    
costs were  separate issues, and  should not be  included in                                                                    
the conversation  of funding for  students and  teachers. He                                                                    
also felt  that capital  improvements and grants  should not                                                                    
be included in the BSA funding consideration.                                                                                   
                                                                                                                                
2:40:14 PM                                                                                                                    
                                                                                                                                
Co-Chair Kelly  noted that every  district had  an intensive                                                                    
needs  student counted  as 13  students. He  understood that                                                                    
those students  were then multiplied  by 1.20. He  asked for                                                                    
further information  on that factor.  Mr. Teal  replied that                                                                    
Anchorage  had  47,000,  but  up   to  intensive  needs,  it                                                                    
increased  to  63,000.  Therefore,  each  Anchorage  student                                                                    
counted as close to 1.30 students.                                                                                              
                                                                                                                                
Co-Chair Kelly  asked how Aleutian  East School  compared to                                                                    
the  Anchorage School  District. Mr.  Teal replied  that the                                                                    
Aleutian East School increased six times.                                                                                       
                                                                                                                                
Senator  Dunleavy queried  the solution.  He wondered  if an                                                                    
inflation-proofed BSA was the answer.                                                                                           
                                                                                                                                
Co-Chair  Kelly interjected  that Mr.  Teal had  offered his                                                                    
opinion often  in recent years.  Mr. Teal stated  that there                                                                    
was not an easy solution  to the education funding issue. He                                                                    
understood that there were many  people that were attempting                                                                    
to  education children,  but the  state had  a large  budget                                                                    
deficit,  which could  not afford  what  the districts  felt                                                                    
they deserved.                                                                                                                  
                                                                                                                                
2:45:54 PM                                                                                                                    
                                                                                                                                
Co-Chair   Meyer  queried   the  vocational   and  technical                                                                    
education factor. Mr.  Teal replied that the  factor was 1.5                                                                    
percent  for  every  district.  It  was  not  an  adjustment                                                                    
factor, but simply increased each student equally.                                                                              
                                                                                                                                
Co-Chair  Meyer wondered  if that  included the  home school                                                                    
children. Mr.  Teal replied that  some home  school students                                                                    
were enrolled in school  through partial correspondence. The                                                                    
student could would be split for those students.                                                                                
                                                                                                                                
Co-Chair Meyer  surmised that the schools  were occasionally                                                                    
audited. Mr. Teal agreed.                                                                                                       
                                                                                                                                
Mr.  Teal continued  to discuss  the  spreadsheet. He  noted                                                                    
that the  correspondence student cost was  approximately $49                                                                    
million; and  intensive needs costs  cost $170  million. The                                                                    
formula ended  with the  basic need of  each student  in the                                                                    
state. He  stated that the basic  need was not a  head count                                                                    
multiplied by  the BSA.  The basic need  was the  head count                                                                    
multiplied by  all of  the factors  within the  formula, and                                                                    
then multiplied  by the  BSA. He  stressed that  the factors                                                                    
differed  by  school districts,  so  each  district did  not                                                                    
receive $680 per student.  There were substantial variations                                                                    
for each school districts.                                                                                                      
                                                                                                                                
2:53:42 PM                                                                                                                    
                                                                                                                                
Mr.  Teal  remarked that  the  required  local effort  as  a                                                                    
percentage basic  need varied greatly  across the  state. HE                                                                    
stated  that  the  Anchorage  School  District  received  20                                                                    
percent of funding  from the basic need  result. He stressed                                                                    
that the local  contribution was based on  how much business                                                                    
property  was  in  the  community  relative  to  residential                                                                    
property. A  residential community would have  a lower local                                                                    
effort  percentage,  so  the  communities  with  higher  oil                                                                    
revenue received  more local funds. Those  communities had a                                                                    
cap  on  their  required  local  effort.  The  local  effort                                                                    
mattered because there was an offset dollar for dollar.                                                                         
                                                                                                                                
Mr.  Teal addressed  the Federal  Impact  Aid, but  remarked                                                                    
that there was little control over that aspect.                                                                                 
                                                                                                                                
2:58:47 PM                                                                                                                    
                                                                                                                                
Senator Hoffman  queried the reason Alaska  received Federal                                                                    
Impact Aid. Mr.  Teal responded that the  Federal Impact Aid                                                                    
had to  do with payments in  lieu of taxes. It  was intended                                                                    
for  a federal  presence on  federal lands,  like land  on a                                                                    
military base.                                                                                                                  
                                                                                                                                
Senator  Hoffman  wondered  if  the  federal  land  included                                                                    
federal parks. Mr. Teal deferred to Commissioner Hanley.                                                                        
                                                                                                                                
Mr.  Teal looked  at comparison  between  FY 00  and FY  14,                                                                    
regarding  who was  contributing to  the education  funding.                                                                    
The  slide  showed  that  the  basic  need  count  declined,                                                                    
correspondence  students  increased,  and  regular  students                                                                    
decreased. The basic  need had increased by  70 percent, and                                                                    
required local  effort had increased by  53 percent, despite                                                                    
the mil-rate decline. Federal Impact  Aid had increased, but                                                                    
was at an even lower rate.  He stated that the state aid was                                                                    
basic need minus required local  effort minus Federal Impact                                                                    
Aid and minus some other factors.                                                                                               
                                                                                                                                
3:04:43 PM                                                                                                                    
                                                                                                                                
Senator Bishop queried the number  of people that understood                                                                    
the  education  funding  formula.   Mr.  Teal  replied  that                                                                    
possibly 20 people understood the formula.                                                                                      
                                                                                                                                
Co-Chair Meyer stressed that many  people were not concerned                                                                    
about where the  funding was derived, rather  that there was                                                                    
any funding at all.                                                                                                             
                                                                                                                                
Co-Chair Kelly  commented that  he was  the reason  Mr. Teal                                                                    
was receiving so much publicity in recent years.                                                                                
                                                                                                                                
Co-Chair  Meyer  stressed  that   education  funding  was  a                                                                    
difficult  process,  and  asked  for  Commissioner  Hanley's                                                                    
comments                                                                                                                        
                                                                                                                                
3:08:22 PM                                                                                                                    
                                                                                                                                
MICHAEL  HANLEY, COMMISSIONER,  DEPARTMENT OF  EDUCATION AND                                                                    
EARLY DEVELOPMENT, felt that the  presentation was well done                                                                    
regarding  adding funding  to the  formula and  manipulating                                                                    
the formula.                                                                                                                    
                                                                                                                                
Co-Chair  Meyer   understood  that  the  other   body  faced                                                                    
difficult  discussions  regarding  school  sizes.  He  asked                                                                    
about the  issue of funding disparities  between students of                                                                    
different school  sizes. Commissioner Hanley  responded that                                                                    
the MacDowell  Group analyzed the  data, and  recognized the                                                                    
differences  of efficiencies  between  a large  and a  small                                                                    
school.  The  analysis  recognized a  difference  between  a                                                                    
school  with  250 student  size  and  400 student  size.  He                                                                    
stressed  that the  students were  not valued  at less  than                                                                    
one. He  noted the  column of the  left of  the spreadsheet,                                                                    
which what the number of  students, and as the funding moved                                                                    
through  the  formula,  the students  became  proxies  which                                                                    
recognized  school   size,  geographic  cost   factors,  and                                                                    
intensive needs.                                                                                                                
                                                                                                                                
3:14:02 PM                                                                                                                    
                                                                                                                                
Co-Chair  Meyer  remarked  that   the  MacDowell  Study  was                                                                    
conducted in  1997, so there  were some  antiquated results.                                                                    
He wondered  if there  should be  a new  study. Commissioner                                                                    
Hanley replied in the affirmative.                                                                                              
                                                                                                                                
Co-Chair  Meyer commented  that the  state contributed  more                                                                    
education funding  when the mil-rate  was adjusted,  and the                                                                    
state received no credit for  that contribution. He wondered                                                                    
if an  adjustment back to  raising municipal  property taxes                                                                    
would  benefit the  schools, without  costing the  state any                                                                    
money. Commissioner  Hanley responded  that it  would simply                                                                    
shift the purchaser  of education. He agreed  that the state                                                                    
did not receive credit for the mil-rate adjustment.                                                                             
                                                                                                                                
Senator Olson  wondered if the  foundation formula  would be                                                                    
advantaging  the rural  student.  Commissioner Hanley  asked                                                                    
for clarification.                                                                                                              
                                                                                                                                
Senator Olson understood that the  study may be outdated. He                                                                    
felt  that  the  current  formula  disadvantaged  the  rural                                                                    
students,  so   much  that  a   lawsuit  pointed   out  that                                                                    
discrepancy. He felt that the  formula could be rewritten to                                                                    
make those  students equal  to urban  students. Commissioner                                                                    
Hanley  responded that  the formula's  intention was  solely                                                                    
equity. He  felt that each  component of the  formula needed                                                                    
to be examined, and possibly rewritten.                                                                                         
                                                                                                                                
Senator Olson remarked  that there had been  an amendment to                                                                    
Section 17. He queried  Commissioner Hanley's opinion on the                                                                    
amendment.  Commissioner Hanley  replied that  there was  an                                                                    
important divide  between the rural and  urban districts. He                                                                    
explained   that   he   worked    hard   to   settle   those                                                                    
discrepancies.  He felt  that  the work  was  moving in  the                                                                    
right direction.                                                                                                                
                                                                                                                                
Co-Chair  Kelly   queried  the  impact  on   rural  schools.                                                                    
Commissioner Hanley  replied that  the funding  was intended                                                                    
for schools above  400 students. Once 400  students was met,                                                                    
the funding was less.                                                                                                           
                                                                                                                                
Co-Chair   Kelly  queried   what  districts   had  decreased                                                                    
funding.  Commissioner Hanley  responded  that  there was  a                                                                    
positive fiscal  note. The districts did  not have decreased                                                                    
funding, but the schools would  have been funded in the size                                                                    
factor.                                                                                                                         
                                                                                                                                
Co-Chair Kelly stressed  that there was no  money taken from                                                                    
rural Alaska,  or any  school district.  Commissioner Hanley                                                                    
agreed.                                                                                                                         
                                                                                                                                
Co-Chair Kelly stated that money was added to districts                                                                         
that were counted as less than one. Commissioner Hanley                                                                         
agreed.                                                                                                                         
                                                                                                                                
CSHB 278(FIN)am was HEARD and HELD in committee for further                                                                     
consideration.                                                                                                                  
                                                                                                                                
ADJOURNMENT                                                                                                                   
3:23:05 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 3:23 p.m.                                                                                          

Document Name Date/Time Subjects
HB278 4 8 14 SFC FY14 ADM to AADM by district.pdf SFIN 4/8/2014 1:30:00 PM
HB 278
HB278 4 8 14 SFC K-12 Presentation.pdf SFIN 4/8/2014 1:30:00 PM
HB 278