SENATE COMMUNITY & REGIONAL AFFAIRS COMMITTEE February 18, 1993 9:00 a.m. MEMBERS PRESENT Senator Randy Phillips, Chairman Senator Robin Taylor, Vice Chairman Senator Rick Halford MEMBERS ABSENT Senator Al Adams Senator Fred Zharoff COMMITTEE CALENDAR SENATE BILL NO. 62 "An Act relating to the public school foundation program; and providing for an effective date." SENATE BILL NO. 102 "An Act relating to municipal property tax exemptions for certain residences and to property tax equivalency payments for certain residents; and providing for an effective date." SENATE BILL NO. 88 "An Act relating to grants to municipalities, named recipients, and unincorporated communities; establishing capital project matching grant programs for municipalities and unincorporated communities; establishing a local share requirement for capital project grants to municipalities, named recipients, and unincorporated communities; and providing for an effective date." SENATE BILL NO. 89 "An Act making appropriations for capital project matching grant programs; and providing for an effective date." PREVIOUS SENATE COMMITTEE ACTION SB 62 - No previous action to record. SB 102 - No previous action to record. SB 88 - See Community & Regional Affairs minutes dated 2/16/93. SB 89 - See Community & Regional Affairs minutes dated 2/16/93. WITNESS REGISTER Senator Jay Kerttula State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Opposed to SB 102 Bruce Geraghty, Deputy Commissioner Department of Community & Regional Affairs P.O. Box 112100 Juneau, AK 99811-21-00 POSITION STATEMENT: Offered information on SB 102 Kent Swisher Alaska Municipal League 217 Second St., Suite 22 Juneau, AK 99801 POSITION STATEMENT: Testified in support of SB 102 Connie Sipe, Executive Director Older Alaskans Commission P.O. Box 110209 Juneau, AK 99811-0209 POSITION STATEMENT: Testified on SB 102 Duane Guiley, Director of School Finance Department of Education 801 W. 10th St., Suite 200 Juneau, AK 99801 POSITION STATEMENT: Offered information on SB 62 Carl Rose, Executive Director Association of Alaska School Boards Juneau, AK 99801 POSITION STATEMENT: Supports SB 62 Sharon Macklin DeBarr Road Anchorage, AK 99504 POSITION STATEMENT: Stated concerns with SB 62 Willie Anderson NEA-Alaska 105 Municipal Way Juneau, AK 99801 POSITION STATEMENT: Stated concerns with SB 62 ACTION NARRATIVE TAPE 93-7, SIDE A Number 001 The Senate Community & Regional Affairs Committee was called to order by Chairman Randy Phillips at 9:00 a.m. CHAIRMAN RANDY PHILLIPS introduced SB 102 (MUNICIPAL PROPERTY TAX EXEMPTIONS) as the first order of business. Number 015 SENATOR JAY KERTTULA said the state has sufficient income, and as long as the state does have sufficient income, we shouldn't be taking from the senior programs. If it becomes necessary to do so, then it should be done in the same manner and not exceeding the percentage of other programs, including the operating of general government. Senator Kerttula voiced his concern with statements that have been made by the Alaska Municipal League on SB 102. He said the seniors don't draw on municipal services; the primary costs to the municipalities is the schools. Senator Kerttula believes it is fair to consider giving a senior citizen property tax reduction, both at the borough and at the state level. He said seniors do not have the costs to the boroughs that the ordinary family or does. However, seniors do put a lot of money into the state just through normal living expenditures. Senator Kerttula stated he believes that overall it is a big mistake to change this program. He said the state gives the municipalities revenue sharing, municipal services and other funds from this state to help offset whatever they may do for the seniors and their property contributions at the local level. Number 088 CHAIRMAN PHILLIPS said state statute says the program has to be funded at $9 million, yet the legislature, year after year only funds one-third of it. He said he has a real problem: either the commitment is there or its not. SENATOR KERTTULA said local governments don't consider seniors particularly important and they aren't going to provide the benefits at the local level unless they have to and it is mandated. He said it would be fairer perhaps if it were funded totally, but if we don't fund it fully, it is not so unfair that they pay the difference for the reason he stated. Seniors don't draw on the programs that cost local government, i.e., schools. Number 155 BRUCE GERAGHTY, Deputy Commissioner, Department of Community and Regional Affairs, directed attention to the Governor's transmittal letter, which states that due to declining revenues, it has become apparent over the past several years that the state can no longer afford to fully pay for the municipal reimbursement program for the mandatory senior citizens or disabled veterans property tax exemption. As a result, municipalities have not been reimbursed in full for the tax revenues lost through the mandatory property tax exemptions. SB 102 will allow municipalities to decide whether they wish to exempt such property from taxation in whole or in part. If they choose to exempt the property, they will lose tax revenue, but that decision will be up to the individual municipality and will not be mandated by the state. Mr. Geraghty pointed out that the total reimbursements to municipalities for calendar year 1992 would have been $13.6 million. The legislature funded the program at $2.8 million, which amounts to about 20 percent of the total funding. He added that the legislature funds the renters rebate program at about 85 percent, which is a little over $800,000. Number 195 CHAIRMAN PHILLIPS asked for an explanation of the January 1, 1993 effective date. BRUCE GERAGHTY answered there was discussion on whether they make this effective on January 1, 1994, and they determined there wasn't a lot of difference between making it retroactive to this year. They have received applications for this year, and, unless the legislature so determines to put money into the fund this year, the program will go unfunded in FY 94. Mr. Geraghty said since the original bill was introduced, in discussions with the Department of Law, it was determined that Section 1 is not necessary and they are proposing that it be deleted in a committee substitute. Number 218 CHAIRMAN PHILLIPS asked if disabled veterans were taken out of the bill, how much money and people would that involve. BRUCE GERAGHTY responded that he didn't have the exact figures, but his understanding was that the disabled veterans are a small portion of the program. CHAIRMAN PHILLIPS requested that he be provided that breakdown. Number 235 KENT SWISHER, Alaska Municipal League, stated the League's support for SB 102, but added that they are requesting a couple of minor changes in the bill. Mr. Swisher noted that when the program started out it was a very small program. However, now it is a great big program and it is an expensive program, both in terms of the state and its obligation, largely unfunded, and the municipalities and their contributions to this program. There is approximately $10 million a year in terms of funding shortfall. He said that's a large enough number to be a significant problem, especially when it is coupled with the decline over the last few years of municipal assistance and revenue sharing. Mr. Swisher outlined three suggested changes to SB 102: (1) require that any local property tax relief program for senior citizens and disabled veterans be approved by the voters; (2) allow locally established property tax relief programs to grant deferments on property taxes as well as exemptions; and (3) exempt the value of property optionally exempted under a local program to provide tax relief for senior citizens and disabled veterans from the full and true value determination prepared by the Department of Community & Regional Affairs, which is a determining factor in the level of funding under the education foundation and the state revenue sharing programs. Mr. Swisher said the municipalities strongly feel these exemptions are decisions that should be made locally. They are not insensitive to the concerns of senior citizens, but it is necessary to balance whether this exemption is most helpful to seniors who may be struggling or perhaps to the younger family who may also be struggling. He suggested that perhaps, as public policy, the question of need should at least be considered. Number 290 Addressing the amendments proposed by the League, BRUCE GERAGHTY said they think the municipalities can already deal with the requirement for an election to approve the ordinance. He said he wasn't quite sure that access to a deferral system isn't already available. There is nothing that says municipalities can't institute a deferral system. The department prefers that the municipalities have as much flexibility as possible. Speaking to the third amendment to remove it from the tax rolls, Mr. Geraghty said the state tax assessor has brought that up, and he thinks that it is a matter of it being in the proper location to exempt so it doesn't affect the education formula. He added that he would get more information on the issue. SENATOR TAYLOR commented that it was his understanding local communities are not allowed to exempt property from that calculation. He believes that a program should be based upon what a tax mill generates in a community, not what the department calculates a community being capable of generating. He said it raises a policy issue that needs to be resolved because there are many communities where the department doesn't have a tax base. Furthermore, he would be very hesitant to provide an additional exemption as suggested by Mr. Swisher, because that exemption might very well be abused. Number 350 CONNIE SIPE, Executive Director, Older Alaskans Commission, explained that the Commission has not yet taken an official position on SB 102, although they have been discussing it and have some concerns with it. Ms. Sipe said she always thought that under the old system there was some exemption from ad valorem value at either revenue sharing or school taxation for these exempted properties so that the municipalities did have some benefit despite the fact that they weren't fully reimbursed by the state. Ms. Sipe noted that seniors have also raised the same concern as addressed by Senator Taylor about the fairness between the communities. Concluding, Ms. Sipe said seniors would like some consideration of something like the deferral system, or if it is going to go to local option, perhaps the state could preserve a mandatory hardship level and have it defined so that it would be fair between cities. She added that 30 percent of seniors have incomes below $15,000 and that includes their longevity bonus and permanent fund dividend. Number 395 CHAIRMAN RANDY PHILLIPS requested that the Older Alaskans Commission provide the committee with any recommended changes. He stated SB 102 would be back before the committee the following Thursday. Number 430 CHAIRMAN RANDY PHILLIPS introduced SB 62 (PUBLIC SCHOOL FOUNDATION PROGRAM) as the next order of business. DUANE GUILEY, Director of School Finance, Department of Education, said one major criticism of the existing formula for distributing state aid is the area cost differential. In response to this concern, the Alaska 2000 Finance Committee recommended formulation of the Alaska School Price Index Committee. He highlighted six primary areas of change that were recommended by that committee and are contained within SB 62. First, it would change the Alaska School Price Index which would serve as a replacement for the current area cost differential. The ASPI is a weighted price differential based on expenditures as reported by districts during FY 89 and FY 92. The districts in the base were the eight school districts that currently have an area differential of 1.0 under the area cost differential. SENATOR TAYLOR commented that prior to the last major change in the foundation formula, Southeast Alaska did not have a school in it that was at 1.0. Anchorage was the only one that was 1.0. When the foundation formula passed, Southeast Alaska got lumped in with Anchorage and has been stuck there ever since, and that's where a major portion of the single site problem came from. DUANE GUILEY said there two very positive things about this approach as compared to other studies to try to determine differences in cost. One is that this approach was based upon total expenditures incurred by the district, which includes local contributions. So those communities that have contributed heavily to the education of the students are awarded through this system because those contributions are reflected in salaries passed to staff, prices paid for good and services and choices made at the local level. Those communities that did not contribute at the max or anywhere close are not rewarded in this system because they did not have the dollars which to flow the negotiated agreements, to the data points that were measured for staff salaries and for the benefits afforded to those staff. Secondly, other studies in the past have concentrated as Anchorage as the base. By expanding the base out beyond Anchorage, it allows the opportunity for even Anchorage to come up above 1.0. Mr. Guiley said every district in the state was afforded the opportunity to be placed at something greater than 1.0. TAPE 93-7, SIDE B Number 001 There was brief discussion on teacher salaries and the number of unemployed teachers looking for work in the various communities. Number 040 DUANE GUILEY continued his overview on changes in SB 62. Vocational education instructions units will be calculated by multiplying enrollment in grades 9-12 by a revenue weighing factor. Gifted and talented instructional units will be calculated by multiplying the enrollment in grades K-12 by 4 1/2 percent, and then multiplying that product by a revenue weighing factor. This is an attempt to remove gifted and talented from special education and treat it as a separate unit. The bill also establishes a hold harmless provision to ensure that no district would receive less as the change is made to the new funding formula. The provision would remain in effect for three years. The due date of the student enrollment projection is being changed to a later date in order to provide more accurate information to the legislature and to the Governor's office in establishing a budget for the following year. Mr. Guiley said they have established a type of forward funding by asking that a district be allowed to use the greater of the current year enrollment or the prior year enrollment, whichever would generate more money for the school district. This would provide an opportunity that the school district would know their minimum level of budget dollars at the time they are making staffing decisions and budget plans. SENATOR TAYLOR asked if there was a change made in the caps in the tax equivalents. DUANE GUILEY answered that they were not recommending any changes in the tax equivalents. As the basic need calculation is raised, the basic need drives the cap, and as the basic need goes up, the cap goes up. It will change the calculation in the following years for the three districts that are at the 35 percent cap. However, they did not adjust the 35 percent base at all. SENATOR TAYLOR requested that Mr. Guiley draft an amendment adjusting that 35 percent base so that he can insert it in the bill. He said people in his community pay 10 or 11 mills and maybe have a third or fourth of it go to education, whereas in the North Slope Borough they pay a lot less in taxes and yet they receive five to six times the amount of money they need to run their schools. Number 110 CARL ROSE, Executive Director, Association of Alaska School Boards, stated their support for SB 62. Mr. Rose was a member of the Alaska School Price Index Committee. He said the methodology that was used and the points that were considered in reviewing the Alaska School Price Index were valid considering the disparity in the state. The attempt was to try to provide equity. He said there were some problems in trying to provide a statewide perspective, but it was felt that the attempt was a good one. The Department of Education is working on some minor adjustments to address some of the needs of the single site issue. Mr. Rose said the Association is concerned that current enrollment figures be used in the state budget planning. Speaking to the hold harmless provision, Mr. Rose asked that the department consider being more clear on the review in three years. He said the three-year review leads some to believe that this issue would be reviewed in three years, but he thinks, more accurately, we're trying to transition from where we are now to where we think we have to be in three years. Number 220 SHARON MACKLIN, representing the Anchorage School District, said the school district has taken a position that if there is a rewrite to the foundation formula this year, they would like it to be equitable to the Anchorage School District. The school district feels that the proposal on the table is not equitable. Although there are some parts of the bill that they support, they feel that overall they are coming out on the short end of the stick. Ms. Macklin directed attention to a graph provided to the committee by the district outlining the areas they believe are not equitable. She said they go from three funding communities to one which results in a large loss, as does the change in the formula for gifted children. Number 276 DUANE GUILEY clarified that the board felt that vocational education is significantly short-funded across the state and they wanted to increase the funding level to vocational education to all school districts, so the amount per student was increased by approximately 50 percent from what's currently provided. The board felt the gifted and talented program was over-funded and they wanted to decrease that level of funding. He added that special education is the fastest growing program in Alaska with basically no limits on it, and this is an attempt to establish a limit on that program and to provide a flat rate of funding. Mr. Guiley also clarified that by existing regulation, Anchorage is a unified city borough and by regulation they are one funding community. He said the Anchorage School District has been granted exceptions in the past, and, as they move to the new funding formula, the Commissioner wanted to dissolve all exceptions that have been previously awarded and go by the regulatory definition of "funding community." Number 305 CHAIRMAN RANDY PHILLIPS told Ms. Macklin that he shared her concerns. As he understand the new formula, Anchorage will get 30.1 percent, and under the existing formula, they get 30.7 percent. This is an overall state increase of $12 million of which Anchorage only gets $476,000, and yet they have 38 percent of the school enrollment, but they are only getting about 29 percent of the funding. Number 335 WILLIE ANDERSON, representing NEA-Alaska, stated they are supportive of parts of the bill, but have serious concerns about other parts of the bill. Mr. Anderson said the school price index issue is one of the areas where they are generally supportive of the attempt to equalize the funding process. They don't agree with all of the conclusions made, but they think it can be worked out so that it becomes a better area of differentials than it currently is. NEA-Alaska is supportive of the centralized correspondence secondary funding. NEA-Alaska has serious concerns about the area of gifted and talented funding. It is their belief that the gifted program is a program that is population driven. The students who are in the special education program are there because they are certified and qualified for that program, and that's the way to get to the cost issue he said. They believe the gifted program should be covered and should continue under the same level of funding that it is at now as opposed to a flat rate of funding. NEA-Alaska supports the transition period in the hold harmless provision. Mr. Anderson said it is NEA-Alaska's belief that the issue of single and small site districts should be addressed once and for all on a long term basis. There being no further witnesses present to testify on SB 62, CHAIRMAN RANDY PHILLIPS closed the public hearing and stated it would be back before the committee in the next of couple of weeks. Because the committee had lost its quorum, CHAIRMAN RANDY PHILLIPS held over action on SB 88 and SB 89 until the following Tuesday. There being no further business to come before the committee, the meeting was adjourned at 10:38 a.m.