SENATE BILL NO. 237 "An Act extending the deadline for authorizing school construction debt reimbursed by the state." Co-Chair Stedman stated that it was the first hearing on the bill. Co-Chair Hoffman MOVED to ADOPT the CS for SB 237, labeled 26-LS1342/S. Co-Chair Stedman OBJECTED. 9:27:43 AM JAY LIVEY, STAFF, CO-CHAIR HOFFMAN, explained the changes in Version S. He stated that the purpose of the CS is to address the way in which state funds are used to pay for school construction. The objectives are to provide a more predictable method of funding for both the Regional Educational Attendance Areas (REAA's) and municipal districts. He explained that the first two sections of the bill address the construction of REAA schools. Mr. Livey reported that Section 1 contains legislative findings which refer to the Kasayulie vs. Alaska court case. This case was introduced seven or eight years ago, but has not been finally settled. In the case, the judge noted that the state has a statutory process for funding municipal schools through the debt service program, but it had no comparable program for funding REAA schools. The court also found that this situation created an unfair environment in terms of money available. The sponsor also believes that it creates an unfair environment in which REAA funding planners have considerable uncertainty about funds available and makes it difficult to plan for future construction of buildings. 9:30:00 AM Mr. Livey highlighted Section 2 of the bill, which addresses the above-mentioned deficiency by creating a fund from which REAA construction dollars are dispersed. Money is deposited in the fund according to a formula which is linked to the outstanding debt amount for municipal schools. Mr. Livey explained how the formula works. The outstanding debt amount for municipal schools represents what the state's obligation currently is for the amount of money to fund for new construction in schools. As noted in the findings section, this amount is about $1.2 billion and is expected to remain the same over the next two years. The findings section also notes that about $515 million has been spent in the last ten years on REAA's schools. In addition, there is a backlog of about ten or eleven REAA schools that need to be funded over the next few years. He stated that spending amounts in municipal schools is higher than the amount spent in REAA schools by about 28 percent. If the outstanding debt amount of $1.2 billion is multiplied by 28 percent, and that total is multiplied by the percent of all REAA students, which is about 12 percent, the result is about $40 million per year. The bill proposes using this formula to fund REAA construction. Mr. Livey described aspects of the fund. The money would be spent from the fund by the Department of Education in the same manner as they would decide to fund REAA schools currently. All requirements would be approved by the department. The balance of the fund would not exceed $100,000,000. Mr. Livey emphasized that the funding would provide some certainty to REAA construction planners and to the Department of Education. 9:33:29 AM Mr. Livey explained that the third section of the bill addresses municipal districts. Currently, the state reimburses municipal districts at 70 percent of their outstanding debt for school construction; however, the statute must be renewed every three years. The bill proposes to make 70 percent permanent in order to reduce funding uncertainty among district planners. 9:34:16 AM Co-Chair Hoffman shared information as to how the bill would address three of the backlogged school within the $344 million backlog of eleven schools. He hoped that the remaining eight schools could be addressed over the next two years. He noted that $40 million is the minimum amount and the legislature can provide more funding if it desires. Co-Chair Stedman WITHDREW his objection to adopting the CS. There being NO further OBJECTION, it was so ordered. Co-Chair Stedman suggested that the sponsor define the rural attendance area. 9:35:55 AM SENATOR KEVIN MEYER, sponsor, related that the bill started out as a simple extension of the current 70/30 debt reimbursement program. The bill is normally extended for two or three years at a time and an attempt is made to incorporate rural schools with construction needs. The bill formulizes a process already in place and puts it into statute. He voiced support for the new CS and the suggested changes. Co-Chair Stedman asked where in the state schools are needed. Senator Meyer could only speak for the Anchorage schools, where there is a backlog of requests. The 70/30 program is in place for all municipal and urban schools and is available every year. 9:38:47 AM Co-Chair Stedman spoke of the needs in Southeast Alaska being "kids and jobs". Senator Huggins discussed the need in MatSu for 4-6 backlogged schools. 9:39:25 AM Co-Chair Hoffman spoke of conversations with superintendents in Anchorage and Fairbanks and hoped that they were looking favorably at the legislation. He hoped to assuage concerns over construction of urban and rural schools. Co-Chair Stedman noted one fiscal note from the Department of Education showing the cost of debt reimbursement starting in FY 2013 at $3,700,000. 9:40:42 AM ANDREA STORY, JUNEAU SCHOOL BOARD, spoke in favor of the bill on behalf of the Board. She reported that the bill has been very successful in helping with major maintenance in Juneau. She spoke of efforts of the school district to keep up on building construction and maintenance needs. She pointed out that Alaska Association of School Boards also supports the legislation. She hoped to see both urban and rural schools flourish because schools are the centers of communities. 9:42:12 AM EDDY JEANS, DIRECTOR, SCHOOL FINANCES AND FACILITIES, DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, offered to answer questions. When asked by Co-Chair Stedman if the department supported the bill, he reported that the department is neutral on the bill. Senator Olson asked what changes in construction are expected as a result of the bill. Mr. Jeans related that with the inclusion of the amendment, a request from the administration would be forthcoming on an annual basis for at least one school construction project. The legislature, over the past ten years, has funded a number of construction projects in rural Alaska. He thought construction and major maintenance needs around the state have been addressed fairly well the last ten years, much better than the ten years prior. Senator Olson inquired if the Kasayulie vs. Alaska case would have an effect on the state's actions. Mr. Jeans said that was difficult to answer because the case has been dormant for a number of years, partly because the legislature has provided funding for rural schools. 9:44:43 AM Co-Chair Hoffman agreed that the legislature has addressed rural school needs; however, the administration has not supported rural school construction for the past ten years. Every single year the administration has requested the money needed to pay bond indebtedness and the legislature has funded it. Co-Chair Stedman requested information on what was spent in rural and non-rural areas on school construction in the past 20 years. Mr. Jeans offered to provide that information. SB 237 was heard and HELD in Committee for further consideration.