Legislature(1995 - 1996)
03/09/1995 09:40 AM Senate FIN
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
March 9, 1995
9:40 a.m.
TAPES
SFC-95, #13, Side 1 (000-462)
(Defective Tape #13, stopped
halfway through side 1)
SFC-95, #15, Side 1 (000-423)
CALL TO ORDER
Senator Rick Halford, Co-chairman, convened the meeting at
approximately 9:40 a.m.
PRESENT
In addition to Co-chairmen Halford and Frank, Senators
Donley, Phillips, Rieger, and Zharoff were present. Senator
Sharp arrived soon after the meeting began.
ALSO ATTENDING: Senator Salo; Randy Welker, Legislative
Auditor; Duane Guiley, Director, School Finance, Dept. of
Education; Jack Fargnoli, Office of Management and Budget;
Jerry Burnett, aide to Senator Phillips; and aides to
committee members and other members of the legislature.
SUMMARY INFORMATION
SB 19 - LEGISLATIVE SESSIONS TO BE IN ANCHORAGE
CSSB 19 (Fin) was REPORTED out of committee with
eighteen new fiscal notes. (See page 7 of these
minutes for listing of fiscal notes.)
SB 36 - BRINDLE SCHOLARSHIP LOANS
SB 39 - MEMORIAL SCHOLARSHIP LOANS
SB 36 was merged into CSSB 39 (Fin). The bill was
then REPORTED OUT of committee with zero fiscal
notes from the Dept. of Public Safety and Dept. of
Education.
SB 37 - END PERMANENT FUND DIVIDEND HOLD HARMLESS
A draft CSSB 37 (Fin) dated 2/17/95 was ADOPTED in
lieu of an earlier 2/15/95 draft. Co-chairman
Frank MOVED to tighten the title, and the bill was
HELD in committee pending receipt and review of
new title language.
SB 40 - APPROP: AHFC TO GENERAL FUND
Testimony was presented by Legislative Auditor
Randy Welker. An AMENDMENT was ADOPTED increasing
the appropriated amount from $335,000,000 to
$400,000,000. The bill was HELD in committee
pending incorporation of the amendment within a
draft CSSB 40 (Fin) for review by members.
SB 70 - PUBLIC SCHOOL FOUNDATION PROGRAM
Information was presented by Jerry Burnett and
Duane Guiley. The bill was then HELD in committee
for further discussion.
SB 84 - APPROP: TO PERMANENT FUND PRINCIPAL
Testimony was presented by Jack Fargnoli of the
Office of Management and Budget. A draft CSSB 84
(Fin) (version C) was ADOPTED and REPORTED OUT of
committee.
SENATE BILL NO. 36
An Act relating to interest on and repayment of A. W.
Brindle memorial scholarship loans; and providing for
an effective date.
SENATE BILL NO. 39
An Act relating to memorial scholarship
loans.
Co-chairman Halford directed that SB 39 be brought before
committee and referenced a draft CSSB 39 (Fin) (9-LS0442\C)
which he advised contains the contents and provisions of
both SB 36 (BRINDLE SCHOLARSHIP LOANS) and SB 39. He then
called for questions from members. None were forthcoming.
Senator Zharoff MOVED that CSSB 39 (Fin) pass from committee
with individual recommendations. No objection having been
raised, CSSB 39 (Fin) was REPORTED OUT of committee with
zero fiscal notes from the Dept. of Public Safety and Dept.
of Education (Postsecondary). All members signed the
committee report with a "do pass" recommendation.
SENATE BILL NO. 84
An Act making a special appropriation to the principal
of the permanent fund; and providing for an effective
date.
Co-chairman Halford next directed attention to SB 84 and
noted two draft Senate Finance committee substitutes. He
explained that one version creates a continuing
appropriation while the other leaves $250 million within the
earnings reserve account so there is no question about the
implication in any combination of interest rates with regard
to the permanent fund. The appropriation would also "count
against any use by a simple majority in the constitutional
budget reserve." The Co-chairman then voiced a preference
for version (9-LS0639\C, 2/23/95) instead of (9-LS0639\G,
2/28/95).
JACK FARGNOLI, Office of Management and Budget, came before
committee. He referenced earlier noted concerns regarding
the original bill and advised that the proposed CSSB 84
(Fin) changes only one item in that list of concerns. He
then voiced his understanding that the proposed Finance
committee substitute would hold the dividend harmless "by
leaving $250 million in the reserve account balance." That
does not reach other concerns such as the majority or three-
quarter vote on releases from the budget reserve, potential
adverse impact on the state bond rating, removal of reserves
without a plan or provision for a fiscal emergency, etc.
Further, by removing a large amount of money, it preempts a
good part of the mandate of the fiscal planning commission.
Use of a well articulated and reasoned reserve policy would
seem to be a key part of any fiscal plan in both the short
and long term.
(Senator Sharp arrived at this time.)
The Governor's position on both the original bill and
proposed Finance committee substitute is "somewhere between
opposition and no position, yet." Mr. Fargnoli asked that
the committee allow ongoing fiscal discussions in both the
administrative and legislative branch to continue. He
stressed that consideration of repayment of the
constitutional budget reserve, forward funding of education,
etc. are linked both in policy and magnitude. Deliberations
in the conceptual stage are not sufficiently set to make a
decision on any one item and particularly not on the
appropriation proposed within SB 84.
Senator Rieger asked if the Office of Management and Budget
had conducted analysis of the size of an earnings reserve
that would be needed to support a five-year-average payout
rule, as presently in statute. Mr. Fargnoli responded
negatively. Senator Rieger voiced his understanding that
the earnings reserve account is to provide a backup for such
a payout. Mr. Fargnoli responded by saying that if the
question is whether the earnings reserve balance should be
used in some proportion for current uses and for other
provisions, he would personally agree "that's probably
something we should aim at." That has, however, not been
articulated or developed. Senator Rieger next advised of
his understanding that the payout rule for calculation of
dividends is based on a five-year average. It would then
seem that in a down year with no moneys in reserve, the
program would be unable to pay "on a five-year average."
(The five-year average could be higher than performance for
a particular year.) Mr. Fargnoli acknowledged that in that
situation the "exceptional limit provision" would activate,
and the dividend would be limited to "what's in the balance
of the reserve account and the current earnings."
Senator Rieger asked if it makes sense to have a policy
establishing the amount which should be reserved, based on
the context of the five-year payout rule. Mr. Fargnoli
reiterated that the administration has no policy on the
issue. He voiced his personal belief that a policy should
be developed within the context of other larger questions
involving use of the fund and net income.
Senator Zharoff voiced his understanding that in order to
ensure that the legislature would not be able to "get into
the CBR with a 50% vote," a balance of $500 million is
needed in the earnings reserve account. Mr. Fargnoli
concurred in that understanding. Leaving $500 million in
the balance might effectively hold harmless the requirement
of a three-quarter vote.
Senator Randy Phillips MOVED for adoption of CSSB 84 (Fin)
version 9-LS0639\G, 2/23/95. No objection having been
raised, the "C" version of CSSB 84 (Fin) was ADOPTED.
Senator Zharoff advised of concern that a balance of $250
million in the earnings reserve would not protect the three-
quarter vote on the CBR. He then MOVED to increase the
balance to $500 million.
Co-chairman Halford referenced testimony from the director
of the Legislative Finance Division that something "in the
range of $450 million" would be needed. The Co-chairman
then advised of his belief that both that need and the
"dividend averaging argument, based on the past history of
the fund, were red herrings." However, in an attempt to
deal with both arguments, it appears reasonable to leave
$250 million in the fund. The total amount taken out for
averaging over the past fifteen years is "somewhere around
$50 million." That argument has thus not proven to be the
history of the fund or the dividend or inflation proofing.
Speaking to the constitutional budget reserve, Co-chairman
Halford said that if the remaining $250 million is added to
other reserves, it would add $300 or $400 million to
"whatever the budget was." In theory, reducing the earnings
reserve down to $250 million would make it easy to "get a
little bit out of the constitutional budget reserve, but it
wouldn't be enough to do the budget balancing that the
Governor is proposing . . . ." The question would still
have to be reach by a three-quarter vote to meet the
Governor's proposed $450 or $470 million from the
constitutional budget reserve.
Senator Zharoff reiterated that he would be more comfortable
if $500 million remains in reserve. He then voiced his
preference for maintaining the earnings reserve account in
tact until the fiscal planning commission has done its work
and made recommendations. He restated his motion to delete
$250,000,000 at page 1, line 4, and insert $500,000,000.
Co-chairman Halford called for a show of hands. The motion
FAILED on a vote of 2 to 5.
Senator Donley concurred in concern that the proposed
appropriation would severely limit ability of the fiscal
planning commission to do its job.
Senator Randy Phillips MOVED for passage of CSSB 84 (Fin)
with individual recommendations. Senator Rieger said that
while he would not oppose movement of the bill, he wished to
register concern that it would occur before inflation
proofing protection for the permanent fund has been dealt
with. Projections by the permanent fund corporation
evidence how the earnings reserve account "runs out at some
time out in the future," and the principal of the fund is
short changed because of insufficient funds to cover the
dividend and inflation proofing. He said he would be more
comfortable with the legislation if it were combined with a
measure "which reprioritized the use of the permanent fund
earnings, so that inflation proofing were first." While the
proposed appropriation places additional moneys in
principal, it could accelerate the date at which "we fail to
inflation proof." That is the reservation. No objection
having been raised, CSSB 84 (Fin) was REPORTED OUT of
committee. Co-chairmen Halford and Frank and Senators
Phillips and Sharp signed the committee report with a "do
pass" recommendation. Senator Donley signed "should be
reviewed by Financial Planning Commission before further
consideration." Senator Zharoff signed "same comments as
above" in concurrence with Senator Donley. Senator Rieger
signed, "Do not pass until inflation-proofing has first
priority on annual earnings."
SENATE BILL NO. 37
An Act relating to treatment of permanent fund
dividends for purposes of determining eligibility for
certain benefits; and providing for an effective date.
Co-chairman Halford directed that SB 37 be brought on for
discussion. He noted an earlier discrepancy in adoption of
a draft CSSB 37 (Fin) and asked that it be clarified.
Senator Randy Phillips, sponsor of the legislation, MOVED
for adoption of CSSB 37 (Fin) (9-LS0449\G, Cook, 2/17/95) in
lieu of adoption of an earlier version dated 2/15/95. No
objection having been raised, CSSB 37 (Fin), 2/17/95, was
ADOPTED.
Senator Phillips explained that the new draft "exempts the
PFD and the SSI and APA (adult public assistance) people
from this bill." Those 8,000 out of 47,500 individuals
receiving welfare benefits will receive both the permanent
fund dividend as well as benefits under APA and SSI. All
others will have to choose between acceptance of welfare
benefits or the permanent fund dividend.
Speaking to concern that children will be hurt by the
proposed bill, Senator Phillips explained that upon
reaching their eighteenth birthday, young people can "go
retroactive and collect all the permanent fund dividends
from the eighteen years prior."
Co-chairman Halford clarified his understanding that under
the proposed bill, those receiving adult public assistance
and SSI would be exempted. Senator Phillips concurred and
advised that that category of individuals is generally
receiving welfare benefits because of a disability. Those
individuals are least able to help themselves. They will
thus receive both their permanent fund dividends and the
benefits to which they are entitled under APA and SSI.
Co-chairman Frank MOVED to tighten the title of the adopted
CSSB 37 (Fin) to reflect changes included therein. No
objection having been raised, Co-chairman Halford directed
that a restricted title be incorporated within the working
document. He then announced that further action on the bill
would not be taken at this time. CSSB 37 (Fin) was thus
HELD in committee.
Senator Zharoff asked which groups of individuals would
continue to be impacted by the new draft. Senator Phillips
advised of those on AFDC, food stamps, and Medicaid
(approximately 39,500 people). Co-chairman Halford voiced
his understanding that those receiving welfare benefits
because of age or disability would continue to receive the
dividend. Senator Phillips concurred.
SPONSOR SUBSTITUTE FOR SENATE BILL NO. 19
An Act relating to the location of the convening of the
legislature in regular session.
Senator Phillips asked that SSSB 19 be brought before
committee. Co-chairman Halford noted that it had been
carried forward on the committee agenda. Senator Phillips
then MOVED for passage of CSSSSB 19 (Fin). He further
directed attention to a package of eighteen fiscal notes to
accompany the bill. He advised that he asked the
Legislative Finance Division to analyze fiscal notes from
various departments and make appropriate recommendations.
The Senator voiced disagreement with legislative analysis on
some of the notes and said that the ultimate authority on
expenditures associated with the moves rests with the
legislature. As an example of concern regarding fiscal note
amounts, Senator Phillips cited the $1.4 million to renovate
the existing capitol building for alternative office use.
He then reiterated his motion for passage of the bill with
the eighteen new fiscal notes.
Senator Zharoff OBJECTED. He referenced prior testimony
against the bill and the recent statewide capital move
initiative which failed. Juneau seeks an opportunity to
work with government in an effort to bring it closer to the
people. That opportunity should be provided. Co-chairman
Halford called for a show of hands on the motion. The
motion CARRIED on a vote of 5 to 2. CSSSSB 19 (Fin) was
REPORTED OUT of committee with the following fiscal notes:
FY 96 FY 98
Dept. of Natural Resources 0 0
Legislature 0
2,733.2
Court System 0 -
27.5
Dept. of Corrections 0
59.9
Dept. of Community & Regional
Affairs 0
45.5
Dept. of Environmental Conservation 0
86.7
Dept. of Transportation &
Public Facilities 0
86.9
Dept. of Public Safety (Admin) 0
8.9
Dept. of Public Safety (Comm.) 0
65.8
Dept. of Fish and Game (LEC) 0
57.9
Dept. of Fish and Game (All) 0
104.8
Dept. of Military and
Veterans Affairs 0 0
Dept. of Commerce and Economic 0
78.8
Development
Dept. of Labor 0
55.4
Dept. of Health and Social 0
57.1
Services
Dept. of Education (PostSec) 0
42.7
Dept. of Education (Ex.Admin.) 0
49.2
Dept. of Revenue 0
128.8
Dept. of Law 0
318.7
Governor 0
755.0
Dept. of Administration 0
51.8
Co-chairman Halford and Senator Phillips signed the
committee report with a "do pass" recommendation. Co-
chairman Frank and Senators Rieger, Donley, and Sharp signed
"no recommendation." Senator Zharoff signed "Do not pass."
SENATE BILL NO. 40
An Act making appropriations from the Alaska Housing
Finance Corporation revolving fund to the general fund;
and providing for an effective date.
Co-chairman Halford directed that SB 40 be brought on for
discussion.
[Note - Recording problem with Tape SFC-95, #13, Side 1.
The tape stopped approximately half way through side 1.
Attempts to advance and continue recording were to no avail.
Minutes regarding SB 40 and the first portion of minutes on
SB 70 reflect transcription of shorthand notes.]
Senator Sharp advised that he would not ask that the bill
move from committee at the present time. He then requested
that the Legislative Auditor speak to the bill.
RANDY WELKER, Legislative Auditor, came before committee.
He noted the cautionary aspect of an appropriation from AHFC
in terms of possible impact on the corporation's bond
rating.
Co-chairman Halford asked that Mr. Welker estimate the
amount of bonds AHFC might expect to issue for the remainder
of the year as well as what the bonds would be issued for.
Mr. Welker said he would provide the information and a cash
flow analysis indicating how the corporation intends to
raise moneys and use the moneys it raises.
Senator Sharp MOVED to amend the bill by increasing the
$135,000,000 in Sec. 2 to $200,000,000, thus making the
total appropriation $400,000,000. No objection having been
raised, the AMENDMENT was ADOPTED. Senator Sharp then
requested that the bill remain in committee for further
consideration.
SENATE BILL NO. 70
An Act relating to the public school foundation
program; and providing for an effective date.
Co-chairman Halford directed that SB 70 be brought on for
discussion. JERRY BURNETT, aide to Senator Phillips, came
before committee. He explained that changes to the current
foundation formula contained within SB 70 consist of:
1. A change in the instructional unit calculation for
large elementary schools to help fund reduced
class sizes.
2. More local effort from school districts with low
millage rates for school support to increase taxpayer
equity throughout the state.
3. Changes in funding levels for very small schools
with
less then 16 students to encourage consolidation
or alternate service delivery.
4. Update of area cost differentials to more
accurately
reflect the cost of doing business in various
regions of the state.
5. Minor changes in law to improve administration of
the
foundation formula.
Mr. Burnett advised that the existing cost differential
would be eliminated and a school price index would be
established by region and reviewed every two years.
Districts with less than 16 students would not have their
own school.
DUANE GUILEY, Director, School Finance, Dept. of Education,
came before committee, voicing concern that the proposed
bill represents a significant shift of revenue from rural to
urban districts.
[The remainder of the minutes reflect transcription from
Tape SFC-95, #15, Side 1]
End: SFC-95, #13, Side 1
Begin: SFC-95, #15, Side 1
Mr. Guiley asked that both the administration and districts
be given time to review the school funding issue and bring
forth recommendations for the next legislative session.
Senator Phillips advised that he sponsored legislation, now
in Senate HESS, for a task force to review school funding
and provide recommendations next year. That option was
rejected by Senate HESS. The Senator voiced his hope that
the department would work with the legislature on the bill.
He acknowledged that the bill is not ideal. It does,
however, provide a "vehicle which all of us can look at and
deal with the school foundation formula . . . because there
are inequities in it right now." The intent is for everyone
to sit down and find a way to modify the formula.
Senator Sharp inquired concerning the number of districts
that meet minimum enrollment of eight and the number of
schools that would not meet the minimum were it not for
inclusion of the teacher's children. Mr. Guiley said he had
no statistics on that issue. Three facilities are currently
operated with less than eight students. A fourth, the
Beluga site on the Kenai Peninsula, has also been
identified as being in its last year of operation. Mr.
Guiley then advised that Meyers Chuck in the Southeast
Islands District has five students. Elfin Cove, in the
Chatham District, and the Telida School, in the Iditarod
School District, both have six. An additional school has
attendance of eight. The next size is ten. Regulations
state that a school program may begin when there are eight
students of elementary school age. That is defined as K-8.
There is no discussion either in statutes or regulations "as
to when an elementary or secondary program ends." The only
statutory reference says that if a school district drops
below eight students, the district board may declare itself
to be inoperative for the year that there are less than
eight students. There is no discussion of when a school
program ends.
Senator Sharp suggested that there is a "reverse incentive"
for a school district to declare that a school should be
closed. Mr. Guiley responded, "Certainly." The Senator
asked that the department check into the number of enrolled
students who are dependents of the school teacher.
Senator Rieger voiced his understanding that in the above-
cited schools, the funding community was started when there
were eight students. Enrollment then dropped. Mr. Guiley
responded affirmatively. Senator Rieger asked if there is a
difference in definition between a funding community and a
school. Mr. Guiley again answered affirmatively. He
explained that the consequence of a funding community is
that it establishes the minimal level of funding for a
school or a group of schools. In some cases a funding
community is many schools combined together. The largest
example is Anchorage where over 65 school buildings are
combined into one funding community. In very small sites,
one or two school buildings make one funding community. The
funding community establishes a floor, or minimum level of
funding. The greatest amount of funding comes with the
first increment of students. As students are added to the
community, each subsequent student generates less money than
the child before.
Senator Rieger asked if the logic behind funding communities
is that "a funding community equals the school." A minimum
number of eight students is the point at which a substantial
increment of money is needed because that is the point where
the school physical plant begins to operate. Mr. Guiley
concurred. He attested to fixed costs associated with
establishment of a school building and programs. It costs
less to add a student to an existing facility than to start
up a new school. That is the basis of the floor level of
funding for the funding community.
In response to a subsequent question from Senator Rieger
concerning how funding flows to a school once the minimal
level of eight students is reached, Mr. Guiley explained
that current statutes provide a minimal level of funding of
two units for any funding community. A list of funding
communities was produced by the Dept. of Education and
distributed to all school districts. Districts had an
opportunity for input into that list. The list has been
modified, since that time, by individual requests from
districts to establish additional funding communities. In
some cases, it has been modified when a district has
notified the department of intent to close a school and
delete a funding community. If there is a request to
establish a funding community, and, hypothetically, if that
funding community only had one child, that one child would
generate $122.0. If the same funding community was
established with two children, the two children would
generate the same $122.0. Children three, four, and five
would also generate that same $122.0. There is no
incremental funding until enrollment exceeds ten. The
eleventh child would thus generate incremental money. In
addition to the basic K-12 unit, any child with special
needs would generate money either through gifted and
talented or some other category of special education,
vocational education, or bilingual education. Supplemental
funding for vocational education is available for grades 9-
12. Bilingual is available for grades K-12. Special
education covers preschool through 12. Those are
supplemental units over and above the K-12 unit.
Responding to a further question concerning how the funding
would flow should the department not approve a funding
community for the hypothetical child, Mr. Guiley explained
that the child would be added to the largest funding
community in the district and would generate money as if the
child were being served at the larger funding community.
The district could then serve the child through a
correspondences program and any other itinerant service. If
the parent chose to enroll the child in state centralized
correspondence study, correspondence study would receive
funding for the child, and the district would receive no
funding. By statute, each school board in Alaska has the
legal obligation to provide a grade-level-equivalent program
to every child that resides within district boundaries.
Senator Rieger asked if the department would approve a
funding community for two schools of five students each.
Mr. Guiley said that the schools would receive less funding
if they combine rather than seek separate approval. The
department looks at the following in determining funding
communities:
1. Geographic boundaries
2. Students to be served
3. Proximity to other schools
4. Whether or not they are connected by road to other
existing funding communities
There is a traditional sense of an approximate 30-mile
radius around a high school comprised of the funding
community of all the elementary schools and secondary
schools (whether they be middle or junior high schools) that
feed into that high school.
Senator Salo voiced her understanding that Anchorage is one
funding community. Mr. Guiley explained that under current
statutes the Anchorage School District consists of three
funding communities:
1. Anchorage
2. Eagle river
3. Girdwood
The Senator then asked if, under the current definition, the
Anchorage area could consist of more than three funding
communities. Mr. Guiley responded that existing statutes
and regulations provide the commissioner of education with
discretion in establishing additional funding communities.
If Anchorage were to apply, and the commissioner approved,
the answer is "Yes, they could be." Senator Salo then
voiced her understanding that that could be accomplished if
a high school and its feeder schools were considered as a
funding community. Mr. Guiley concurred.
Senator Zharoff asked what would happen to the buildings and
facilities for the 35 schools with enrollments less than the
minimum of 16 proposed in the subject bill. Mr. Guiley said
that most of the buildings are operated under use agreements
with the Dept. of Education. The agreement requires local
school districts to "keep the building in safekeeping for,
normally, one year." The local district would be required
to insure, maintain and heat the
facility for one year while the department determines
whether or not to surplus the facility. Present statutes
and regulations deal with surplusing procedures that involve
the Dept. of Administration and in some cases the Dept. of
Transportation and Public Facilities and Dept. of Natural
Resources. It is possible that after the initial year the
building would be surplused and used for other purposes.
If, at a later date, there were enough students to again
open a school, the state would be faced with the situation
of no longer having a school in which to serve the children.
Senator Zharoff noted the migrant nature of populations in
some rural areas and voiced concern that the proposed bill
has created trauma in rural areas. He stressed need for
schooling in a formal educational setting as opposed to
correspondence study.
Senator Zharoff also raised concern over the fact that the
state does not have a definition or policy "of what basic
education is." Basic education in one area may not be the
same in another. He noted specifically that many students
graduating from high school must have a foreign language to
get into a good college. A number of Alaskan schools do not
offer foreign language programs. He then asked whether
foreign language should be considered an element of basic
education.
Senator Phillips attested to problems with class size in
urban schools. The proposed bill represents an attempt to
lower the TPR. He said that while the legislation may not
be perfect, it is a start.
Discussion followed regarding enrollment at a logging camp
school in the Southeast Islands District. Senator Phillips
voiced his understanding that most, if not all, of the
students are "from out of state." Mr. Guiley said that the
foregoing statement would be correct "of many of the logging
camps on Prince of Wales and Southeast Island REAA school
district . . . ."
In response to comments by Senator Sharp regarding district
responsibility to maintain and insure school facilities for
one year after closure, Mr. Guiley said that the department
has no funding source to take over the building once it is
transferred back to the state. Under current statutes, the
state owns the facility. The cost of maintaining and
insuring it would be added to the department budget. In the
course of further discussion, Mr. Guiley advised of the
existing hold harmless statute. In case of declining
enrollment or decrease in the number of K-12 units, a
district receives 75% of the revenue it would have received
in the prior year. When a funding community is deleted from
a school district, that normally puts the district in the
situation of receiving hold harmless funds. Those funds
allow for transition from an active school to closure.
Senator Sharp voiced his understanding that the district
could receive up to 75% for zero students once a school is
closed. Mr. Guiley responded affirmatively. He further
advised that the hold harmless statute provides 75% the
first year, 50% the second year, 25% in year three, and zero
for the fourth year. Closure thus involves phase out over a
four-year period.
Senator Rieger inquired concerning the rate at which
instructional units are accumulated. Mr. Guiley explained
that the table of values for a combined K-12 program allows
two units for the first ten students. When enrollment moves
above ten, the funding community receives 1/5 of a unit for
each child above ten in the size range from 11 to 20. When
enrollment moves beyond 20 to 21, each incremental child
generates 1/8 of a unit for funding communities ranging from
21 to 60. As enrollment moves above 60, additional students
generate 1/12 of a unit. Above 120 students, each
additional child generates 1/15 of a unit. In each case,
the minimal level of funding carries forward. Every funding
community has the benefit of those first two units, if it is
funded under the K-12 formula. Senator Rieger voiced his
understanding that a funding community would receive two
units at enrollment of 10, three units at 15, four at 20,
and five at 28. Mr. Guiley concurred, adding that a funding
community would receive nine units at 60. Those nine units
carry forward to 121 when fourteen units would be received.
Senator Rieger asked what would happen should the floor
increase to sixteen. Mr. Guiley said that the bill does not
change the table of instructional values. There would
simply be no funding communities in the range of 1 to 10 or
11 through 15. When enrollment reaches 16, the funding
community would receive two units and 1/5 of each unit for
each child beyond 10.
Co-chairman Frank asked if the hold harmless statute speaks
to funding communities or decreases in district enrollment.
Mr. Guiley said that it speaks to district decreases in K-12
units. As the number of K-12 units decreases by more than
10%, a district becomes eligible for hold harmless. The Co-
chairman suggested that a district "would have to have no
more than 20 units total . . . to achieve some money under
the hold harmless . . . ." Mr. Guiley concurred. He
explained that Sec. 5 of SB 70 reduces the current hold
harmless requirement from 10% to 5%. The department has
provided an analysis of which districts would fall under the
new 5% threshold. As an example, Bristol Bay School
District would lose a funding community under Sec. 4. The
district would "get some hold harmless money under Sec. 5 by
being decreased to the 5%." The district would lose $134.0
but would make back $78.0 on hold harmless. That would be
phased out over a four-year period. Co-chairman Frank
reiterated that hold harmless applies to district-wide units
rather than funding communities. Mr. Guiley concurred.
Senator Sharp voiced his understanding that if closure of a
school of eight or ten students within a larger district did
not amount to 5% reduction in enrollment, the district would
not be held harmless from the expense of maintaining the
structure. Mr. Guiley responded affirmatively. Under the
current statute, the district would have to sustain a loss
of more than 10% of its K-12 units. Under SB 70, the loss
would only have to be 5%, and the loss would be applied
district wide. In a district with generally increasing
average daily membership, the loss of units associated with
closure of a funding community would not generate hold
harmless revenue. The district would have to cover expenses
of maintaining and insuring the closed facility, for a year,
out of the district operating budget.
Senator Salo raised a question regarding circumstances at
Ketchikan. Mr. Guiley explained that past discussion of
hold harmless related to situations where there has been a
substantial decline in enrollment, and the district needs
time to phase out program offerings so that remaining
students are not immediately impacted. That is the general
purpose of hold harmless. It does not generally anticipate
closure of physical school buildings.
Referencing Sec. 2 of the bill, Senator Salo noted the broad
change associated with instituting the school price index as
a replacement for the area cost differential. She then
noted that a school price index study was conducted some
years ago, and she asked if the study remains valid. Mr.
Guiley advised that work on the school price index "fell out
of the work that was originally done on Alaska 2000
activities which began in November of '91." The committee
began work in April of 1992 and worked on the price index
for two years. The work was never completed nor endorsed
universally because the end result suggested that some
districts might lose money while others would gain. An
attempt to reduce the study to legislation produced much
opposition. At the present time, the department does not
have a school price index available and ready. The proposed
legislation provides a one-year period to develop the index.
Remaining portions of the bill would be implemented the year
before.
In response to a question from Senator Phillips, Mr. Guiley
said that the last update to the area cost differential (the
current area cost differential that exists in statute) was
done in 1988 by the McDowell Group. Prior to that, it was
accomplished in 1983 and '84. Senator Phillips asked if the
McDowell study was done in 1988 but effective in 1989. Mr.
Guiley said that the McDowell update was never adopted by
the legislature. The department continues to work from
1983-84 data.
Co-chairman Frank called for additional questions on the
legislation. None were forthcoming. He then directed that
SB 70 be HELD in committee for further consideration.
ADJOURNMENT
The meeting was adjourned at approximately 11:00 a.m.
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