Legislature(2019 - 2020)SENATE FINANCE 532
02/14/2020 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB106 | |
| School Construction Funding Overview | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 106 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 106
"An Act relating to school bond debt reimbursement."
9:01:41 AM
^SCHOOL CONSTRUCTION FUNDING OVERVIEW
9:01:45 AM
Co-Chair von Imhof explained the issue:
House Bill 106 was initially presented to the
committee on May 6, 2019. We took public testimony
and reviewed the fiscal note. The bill is currently
unchanged from last year.
To recap: we currently have a moratorium in
place. Projects approved by voters between January 1,
2015 and June 30, 2020 are not be eligible for the
state's bond debt reimbursement program and the whole
cost must be paid by the municipality.
House Bill 106 would extend the current
moratorium for another five years until June 2025.
If we do nothing this session, the moratorium
will end and the state will resume paying a portion of
the bond debt incurred for projects approved after
June 30. The state reimbursement rate would be 40
percent or 50 percent, depending on type of project.
House Bill 106 would not affect repayment of debt
that was approved before the moratorium. The state
continues to make reimbursements for those payments,
though the amount was reduced by half by a budget veto
this year.
My office has prepared a table showing the
current status of the program and the FY2020 debt
reimbursement amounts.
9:04:07 AM
Co-Chair von Imhof looked at the table titled, "HB 106
School Bond Debt Reimbursement Timeline" (copy on file):
BEFORE 2015
School Bond Debt Reimbursement:
Municipalities could bond for school
construction/major maintenance and get a
percentage reimbursed by the state. The
percentage reimbursed depends on type of
project and the date the bond was approved
by voters. Projects approved before 2015
were not affected by the moratorium - the
state continued to make payments on existing
debt.
Veto Effects:
In FY2020, state payments on existing debt
was cut in half by veto. This increased the
local share of the debt payments.
The amount that this affects each district
is on the attached list.
BETWEEN 2015 - 2020
5-year moratorium (expiring):
Any bonds approved by voters between January
1, 2015 and June 30, 2020 are not eligible
for reimbursement by the state; all costs
are being assumed by the local
municipalities. The moratorium will expire
on July 1, 2020 if nothing is done.
2020 and BEYOND
No Legislative Action:
Any bonds approved by voters after July 1,
2020 will be eligible for reimbursement.
Rate will be 40 percent for most projects
and 50 percent for those that qualify under
AS 14.11.100(j)(4).
HB 106 - 5-year extension:
If HB 106 passes, any bonds approved by
voters between June 30, 2020 and 2025 are
not eligible for any reimbursement by the
state; all costs are being assumed by the
local municipalities. Bonds approved
on/after July 1, 2025 would be eligible for
debt reimbursement.
9:05:36 AM
HEIDI TESHNER, DIRECTOR, FINANCE AND SUPPORT SERVICES,
DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, introduced
herself.
TIM MEARIG, FACILITIES MANAGER, DEPARTMENT OF EDUCATION AND
EARLY DEVELOPMENT, introduced himself.
Ms. Teshner (DEED) discussed, "State-Aid for School Capital
Projects: Debt and Grant" (copy on file). She highlighted
slide 2:
Our Mission: An excellent education for every student
every day.
Our Vision: All students will succeed in their
education and work, shape worthwhile and satisfying
lives for themselves, exemplify the best values of
society, and be effective in improving the character
and quality of the world about them.
Ms. Teshner addressed slide 3:
What is DEED's purpose? Why do we exist as an agency?
Connect how your work/this presentation reflects
DEED's purpose.
Mr. Mearig highlighted slide 4, "Historic School Capital
Funding":
1. Federal
2. State Funding Mechanisms (General Fund)
Grants (less than 1970)
GO Bonds (2003, 2011)
AHFC Revenue Bonds (1999, 2001, 2002)
Debt Reimbursement (1971)
School Fund AS 43.50.140 (FY99-present)
Others (Ex. Insurance Fund AS 22.55.430)
3. Local Education Agency (LEA)
Capital Reserves
Municipal Debt
Prior to 1900, formal education in Alaska was all
Federal (or was connected with church missions). In
1900, Congress granted legal authority for communities
in Alaska to incorporate and establish schools. In
1905, the Nelson Act provided for schools outside the
incorporated towns assigning responsibility to the
District of Alaska and later the Territory (1912).
This solidified a dual system for education in Alaska
portions of which remained until the mid-1980s. The
dual system shared responsibility between the
Territorial/State government and the Federal
government. The Federal government, through the
Department of Interior, had primary responsibility for
Alaska Natives.
Generally, where a school was formed, through either
system, a school facility followed. There is no clear
record of just how this occurred nor through what
funding sources.
Federal involvement continues today through Impact Aid
for school capital (less than $1M annually) + Urgent
Reno less than $4M, etc. Since federal withdrawal in
1984, between $10M-$20M.
9:09:48 AM
Mr. Mearig discussed slide 5, "Historic Funding All
Sources [c1975 2019]."
Source: DEED Projects.mdb database. Created in 1997
in response to Kasayulie.
Debt - $3,121,926,215
DEED Grants - $2,381,666,795
Other Grants - $587,834,345
Federal - $28,177,762
Co-Chair von Imhof stressed that there were many different
ways to fund the schools. She explained that approximately
half was debt reimbursement, but 40 percent was through
grants. She felt that was the purpose of the slide.
Mr. Mearig pointed to slide 6, "Historic Funding All
Sources [c1975 2019]":
Source: DEED Projects.mdb database. Created in 1997
in response to Kasayulie.
City/Borough $4,110,330,733
Multi/Statewide $21,205,800
REAA - $1,988,304,184
Co-Chair von Imhof asked for a description of Regional
Educational Attendance Area (REAA) and the reason for the
categories.
Mr. Mearig replied that REAAs were established in 1974. The
REAAs were areas where there was no local government to
take responsibility for education, otherwise education was
the responsibility of the cities and boroughs.
Co-Chair von Imhof wondered how many school districts were
in REAAs.
Mr. Mearig responded that there were currently 19 REAA
school districts.
9:14:50 AM
Mr. Mearig highlighted slide 7, "Recent Funding (SB237
Report)":
1. $1,430,689,400 in Funding
Total project value for Debt projects
State share value for Grant projects
2. Three Supplementary Handouts
Project Funding by District (report Appendix A)
Project Listing by District (report Appendix B)
Funding by Year by District
Co-Chair von Imhof wondered whether the slide discussion
was complete.
Mr. Mearig replied that there were some supplemental
handouts that tracked the $1.4 billion since the 2010
watershed time period.
Co-Chair von Imhof shared that that there was a large
appendix handout. She looked at Appendix A, which listed
the different school districts, the number of grant
projects, the total debt funding, and the total grant
funding per district. The intent was to examine to
different "buckets" and the different funding amounts. She
noted that debt fund had $720 million total, and grant
funding was $709 million total. She explained that the
larger school districts, like the Anchorage School
District, received grant funding. She stated that Appendix
B showed the different project types. She wondered whether
"DR" was "dead."
Mr. Mearig replied in the affirmative.
Co-Chair von Imhof stated that the document was intended to
give the committee a feel for the activities for capital
projects in school districts across the state.
Mr. Mearig shared that there was an additional outline that
showed the district funding by year.
Co-Chair von Imhof stated that he was referring to the
first page of the document.
Mr. Mearig discussed slide 8, "Current Funding Options":
1. School Construction Grant Fund (1990)
2. Major Maintenance Grant Fund (1993)
3. REAA and Small Municipal District Fund (2010)
Indexed fund
DR Funding / percent of C/B schools * .244
4. Debt Reimbursement Funding
9:20:47 AM
Co-Chair von Imhof explained that when the veto override
failed in the month prior,
Mr. Mearig replied in the affirmative, and explained that
there was a nuance, because the REAA fund was on a two-year
lag in the actual debt provided
Co-Chair von Imhof explained that the handouts were all
posted online.
Co-Chair Stedman wondered how Mt. Edgecumbe was in the
list.
Mr. Mearig deferred to Ms. Teshner.
Ms. Teshner explained that the department worked with Mt.
Edgecumbe every year to determine their capital needs. She
shared that there was a deferred maintenance list provided
to the department, and a budget request was put forward as
a separate direct appropriation to Mt. Edgecumbe.
Co-Chair Stedman felt that including Mt. Edgecumbe in the
list would show a picture of all the schools in the state.
He wondered whether Mt. Edgecumbe would fall into the major
maintenance list.
9:24:34 AM
Ms. Teshner replied that Mt. Edgecumbe would not be
included in that major maintenance list, and agreed to
provide information about Mt. Edgecumbe's historic capital
appropriations over the last ten years.
Co-Chair von Imhof wondered whether Galena School had its
own line item.
Ms. Teshner replied that it was part of Galena School
District.
Senator Bishop wondered how a school district would get on
the major maintenance list, and whether there was a
required dollar amount.
Mr. Mearig replied that all districts had the ability to
apply for school capital funding through the grant process
as outlined in AS 14.11. He explained that there was a
threshold set in regulation, that stressed that below
$50,000 was not considered major maintenance.
Senator Bishop surmised that a city or borough did not have
to supply a fee for the application.
9:26:25 AM
Mr. Mearig replied in the affirmative, and stated that the
application was available to all.
Co-Chair von Imhof believed that the next slides would
describe the capital grant evaluation parameters.
Mr. Mearig addressed slide 9, "Current Project Categories
(AS 14.11.013)":
(A) avert imminent danger or correct life-threatening
situations;
(B) house students who would otherwise be unhoused;
for purposes of this subparagraph, students are
considered unhoused if the students attend school in
temporary facilities;
(C) protect the structure of existing school
facilities;
(D) correct building code deficiencies that require
major repair or rehabilitation in order for the
facility to continue to be used for the educational
program;
(E) achieve an operating cost savings;
(F) modify or rehabilitate facilities for the purpose
of improving the instructional program;
(G) meet an educational need not specified in (A)
(F) of this paragraph, identified by the department
Mr. Mearig looked at slide 10, "Current Project Categories
(AS 14.11.013) (Major Maintenance)":
(C) protect the structure of existing school
facilities;
(D) correct building code deficiencies that require
major repair or rehabilitation in order for the
facility to continue to be used for the educational
program;
(E) achieve an operating cost savings;
Co-Chair von Imhof wondered whether schools that
experienced damage from disasters would fit into the
program.
Mr. Mearig explained that when a project was identified by
a district, the department would use the categories to
identify the primary purpose of the project. That project
was then placed on a corresponding list for major
maintenance or school construction grant funds. He shared
that a project that had a loss would be evaluated, and
there would be some major rebuilding that would include new
square footage. He shared that a project must be evaluated
for whether or not the student population would qualify for
the space.
9:30:28 AM
Senator Olson understood that Kaktovik had a fair amount of
insurance coverage, but some schools did not have adequate
insurance money. He wondered whether there was an emergency
fund to access for those underinsured school districts.
Mr. Mearig replied that the department did not have an
emergency fund. He explained that there was opportunity to
fund construction related to emergencies. He shared that
every district was required to have replacement value
insurance on their buildings. He noted that there were some
losses that could be separately managed by those districts,
such as Anchorage without earthquake insurance. He shared
that the first opportunity of funding for any catastrophic
loss would be insurance, followed by funding mechanisms
through AS 14.11.
Senator Olson wondered whether Mr. Mearig was advocating
for earthquake insurance. He felt that earthquake insurance
may be unaffordable.
Mr. Mearig was not aware of the department's position on
earthquake insurance, but shared the concerns about costs.
Co-Chair von Imhof reminded the committee that there was a
supplemental budget with a draw on the CBR, which was the
ultimate backstop for very large disasters such as
wildfires and earthquakes.
Co-Chair Stedman noted that there was approximately $149
million in requests, which was historically normal. He
requested the ranking process.
Mr. Mearig responded that he state had a robust rubric for
evaluating capital project needs through the grant process.
He explained that, as districts submitted applications,
there was a series of factors that contributed to the
evaluation criteria. He stated that there was also a
consideration of the scope of the project as it pertained
to education related spaces directly. He shared that the
department used an evaluative ranking team to independently
rank and come to an agreement on the assessment of the
scoring. He noted that the ranking did not apply to the
debt-funded projects.
Co-Chair Stedman explained that committee would pick an
aggregate dollar amount for major maintenance. He pointed
out that there would not be a project funded before one
that is listed earlier in the list.
9:37:21 AM
Co-Chair von Imhof requested the list from the department.
Mr. Mearig pointed to slide 11, "Current Project Categories
(AS 14.11.013) (School Construction)":
(A) avert imminent danger or correct life-threatening
situations;
(B) house students who would otherwise be unhoused;
for purposes of this subparagraph, students are
considered unhoused if the students attend school in
temporary facilities;
(F) modify or rehabilitate facilities for the purpose
of improving the instructional program;
(G) meet an educational need not specified in (A)
(F) of this paragraph, identified by the department
Mr. Mearig discussed slide 12, "Fund Category Entity
Relationships":
Small Municipal Districts are: Hydaburg, Kake, St.
Mary's, and Tanana. (previously also Klawock)
Mr. Mearig continued to discuss slide 12.
Senator Bishop queried the threshold dollar amount on the
last point.
Mr. Mearig replied that the qualification for a small
municipal district was based on the assessed valuation and
student population. He agreed to provide the exact formula.
Mr. Mearig continued to discuss slide 12.
9:45:11 AM
Mr. Mearig highlighted slide 13, "Capital Improvement
Project (CIP) Eligibility":
1. Six-year capital improvement plan
2. Functioning fixed asset inventory system (FAIS)
3. Proof of required property insurance
4. Certified PM and Facility Management Program
5. Capital project and not maintenance
6. Participating share
Senator Bishop was grateful for the "wiggle room" of
requirements for the list. He felt that a proactive
facility manager should be a priority.
Co-Chair von Imhof thanked the department for the
management and criteria of the list. She felt that other
agencies could benefit from a similarly managed list. She
wondered whether Mr. Mearig would share the methods at
other agencies' request.
Mr. Mearig replied in the affirmative.
Mr. Mearig looked at slide 14, "Grant Participation and
Eligibility":
1. Capital Improvement Project (CIP) Grant Application
Due from School Districts on or before September
1 (annually)
CIP Application materials are posted on our
website
(education.alaska.gov/facilities/facilitiescip)
2. Project Ranking
Ranked in accordance with criteria in AS 14.11
and 4 AAC 31
3. Eligibility
Districts must have a six-year plan, a fixed
asset inventory system, adequate property loss
insurance, and a preventive maintenance and
facility management program certified by the
department
4. CIP Priority lists
Initial lists are released on November 5
Final lists are released after any appeals for
reconsideration are finalized
Mr. Mearig addressed slide 15, "Grant Participation and
Eligibility":
Sample slide. Use Slide:ology as a reference guide as
you create your presentation. The DEED PIO has a copy
available for loan.
9:50:06 AM
Mr. Mearig discussed slide 16, "Grant Awards FY12 FY20":
Sample slide. Use Slide:ology as a reference guide as
you create your presentation. The DEED PIO has a copy
available for loan.
Co-Chair Stedman pointed out that the 50 percent Harbor
Matching Grant Fund was modeled after the list, meaning
that the agency ranked the harbors. He noted that coming
out of a decade of minimal capital projects in
approximately 2006, the legislature eliminated the school's
major maintenance list. He wondered whether the department
could examine that time, because the following year the
list re-materialized, because of the reapplication from the
schools. He felt that the funding requirement of $150
million may not be available. He stressed that there would
continue to be a new list with similar projects.
9:55:04 AM
Co-Chair von Imhof felt that the legislature could not
predict the behavior of the school districts other than
examining the historical data. She wondered whether there
should be a risk of $30,000 and inflate it to $100,000. She
stressed that the concern was about funding in small
increments or allow districts to examine their priorities.
She did not have the solution to that concern.
Mr. Mearig looked at slide 17, "Debt Participation and
Eligibility":
1. Debt Reimbursement program is established in AS
14.11.100
2. Capital Improvement Project (CIP) Debt Application
a. May be received at any time the Debt
Reimbursement program is open.
b. CIP Application materials are posted on our
website
(education.alaska.gov/facilities/facilitiescip)
3. Project Ranking
a. Projects are not ranked or evaluated for
prioritized need
4. Eligibility
a. All types of City except 3rd Class
b. All types of Borough
c. Districts must have a six-year plan, a fixed
asset inventory system, adequate property loss
insurance, and a preventive maintenance and
facility management program certified by the
department
Mr. Mearig addressed slide 18, "Debt Reimbursement Trends":
Percentage of Annual Debt Service
• FY1971 FY1977 100 percent
• FY1978 FY1983 90 percent
• FY1984 FY1994 80 percent
• FY1995 FY1999 70 percent
• FY2000 FY2015 70 percent/60 percent*
[SB64 (SLA 2015) implements moratorium on additional
debt reimbursement through FY2020]
• FY2021 FY20XX 50 percent/40 percent**
*NWAB at 90 percent for bonds between 1990-2006
**Rates shown are reflective of current statute after
the moratorium is lifted
1970 1983 Debt was run as a program under Department
of Revenue (AS 43.18.100)
In the FY00-20 period, there was a special provision
in AS 14.11.100 to reimburse NWAB at 90 percent for
bonds between 1990 and 2006.
Co-Chair von Imhof noted that REAAs continued to have 100
percent.
Mr. Mearig replied that REAAs had a 2 percent match and a
98 percent state share.
Mr. Mearig discussed slide 19, "Debt Reimbursement Trends":
1970 1983 Debt was run as a program under Department
of Revenue (AS 43.18.100)
100 percent - $1,412,000 (likely missing data)
90 percent - $146,451,910
80 percent - $598,790,179
70 percent - $1,765,433,689
60 percent - $642,258,438
[none of the above is adjusted for the time-value of
money]
10:00:21 AM
Senator Bishop wondered whether the 2 percent came out of
the district's BSA.
Mr. Mearig replied that he did not have detailed
information about how a district would reach their 2
percent match. He stated that the district must use outside
14.11 money.
Co-Chair von Imhof wondered whether there was any state
capital money for charter schools.
Mr. Mearig replied that that charter schools would be
eligible for capital funding if they were in a facility
owned by the district. He stated that charter schools in
leased facilities were not eligible for state aid under
14.11.
Co-Chair von Imhof surmised that the charter school would
need to pay for their capital on their own., if a district
vacated a building.
Mr. Mearig replied in the affirmative, and explained that
if the charter school leased the space, the lessor's rate
would assume some level of capital renewal as needed for
that particular building. The state did not fund repairs on
other peoples' buildings, only on buildings owned by a
school district as a political subdivision of the state.
Mr. Mearig addressed slide 20, "Debt Reimbursement Trends":
1970 1983 Debt was run as a program under Department
of Revenue (AS 43.18.100)
Co-Chair von Imhof noted that new school bond debt could be
partially reimbursed at 50 percent or 60 percent in July
2020.
Mr. Mearig agreed, if there was an authorization of new
school debt.
Co-Chair Stedman wondered whether there were any authorized
unissued bonds available.
Mr. Mearig replied that he did not believe so.
Mr. Mearig pointed to slide 21, "Debt Reimbursement
Trends":
Fully funded 32 out of the past 45 years.
Significant shortfalls through 1980; small adjustments
through 1990; veto anomalies in FY17 and FY20.
10:06:11 AM
Mr. Mearig addressed slide 22, "Debt Proceeds and
Refundings":
Initial Bond Sales
• After bonds are sold the department identifies
how much of approved projects are funded by the
new bond.
• Establish any proration's for bonds based on
approved project reimbursement rate. (AS
14.11.100(a))
Refunding of Bonds
• Refunding of current bonds must follow the
requirements in AS 14.11.100(j)(2).
• Department evaluates refundings by comparing the
annual debt service of the refunding package to
the original annual debt service of the bond(s)
that are refunded. The refunding must show an
annual savings.
Mr. Mearig discussed slide 23, "Funding Comparison":
REAA/Small Muni
Available to REAA and 4 small municipal districts
Funds state share of actual project costs
Projects are funded by priority from DEED
lists
Specific eligibility requirements:
1. No new space for MM
2. Only eligible space for SC
3. Priority to school construction
Participating share: REAAx - 2 percent;
Small Muni - 10 percent to 20 percent
State funding is tied to annual appropriation for
debt reimbursement
MM/SC Grant Funds
Available to all school districts
Funds state share of actual project costs
Projects are funded by priority from DEED
lists
Specific eligibility requirements:
1. No new apace for MM
2. Only eligible space for SC
Participating share required between 2
percent and 35 percent
State funding is by legislative
appropriation to the funds
Debt Reimbursement
Available to any municipality that has the
ability to bond
Funds portion of annual municipal debt
payments
Local government sets own priorities
Could fund projects that are not eligible
for grants - those not eligible for space
Participating share currently at: 60 percent
if not eligible for space 70 percent all
others
State funding is based on when the bond was
passed and subject to appropriation.
10:10:54 AM
Co-Chair von Imhof wondered whether there would be a change
to the percentage.
Mr. Mearig replied in the affirmative.
Co-Chair von Imhof surmised that it was in July.
Mr. Mearig agreed.
Co-Chair von Imhof thanked the presenter and the documents
provided by him.
Senator Olson wondered whether the ultimate decision in the
appeal would be made by the hearing officer.
Mr. Mearig replied in the affirmative, and explained that
any project determination that was made in the annual list
issued on November 5 would allow for districts to come to
the department by the end of November to ask for
reconsideration. He shared that there were typically a few
that would request reconsideration for either points or the
assigned dollars. He remarked that there was also an
evaluation of all capital project requests that came
through the grant process for cost effectiveness. He stated
that there were many altered projects for cost effective
purposes, so a district may disagree with that valuation
change.
Senator Olson wondered whether and independent hearing
officer was a subordinate of DEED. He queried the
effectiveness of determining a different answer.
Mr. Mearig replied that that it used to be appealed to the
superior court.
Senator Olson asserted that it was no longer an option.
Mr. Mearig stated that a department employee was no longer
serving as a hearing officer.
Senator Olson wondered how many times an appeal at that
level had reversed a department decision.
Mr. Mearig replied that he was not aware of a specific
time, and his history in the department went back to 1998.
Co-Chair von Imhof restated the timeline of the bill and
its aspects.
HB 106 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB106 ver A Sponsor Statement 4.17.19.pdf |
SFIN 2/14/2020 9:00:00 AM |
HB 106 |
| HB106 ver A Back Up Information - School Debt Spreadsheet 4.17.19.pdf |
SFIN 5/6/2019 9:00:00 AM SFIN 2/14/2020 9:00:00 AM |
HB 106 |
| 021420 School Construction Funding Overview.pdf |
SFIN 2/14/2020 9:00:00 AM |
School Construction Funding |
| 021420 School Construction Funding by District.pdf |
SFIN 2/14/2020 9:00:00 AM |
School Construction Funding |
| HB 106 Background - Bond Reimbursement Timeline 2.14.2020.pdf |
SFIN 2/14/2020 9:00:00 AM |
HB 106 |