Legislature(2021 - 2022)ADAMS 519
03/17/2022 09:00 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB135 | |
| HB273 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 135 | TELECONFERENCED | |
| += | HB 273 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 273
"An Act relating to education; increasing the base
student allocation; and providing for an effective
date."
10:15:48 AM
REPRESENTATIVE ANDI STORY, SPONSOR, thanked the committee
for hearing the bill. She provided a PowerPoint
presentation titled "HB 273: Increasing the Base Student
Allocation and Accounting for Inflation" (copy on file).
She explained that the bill would help maintain stability
in the school system to allow for districts to focus on the
more substantial work, such as educating students, rather
than focusing on the following year's budget and potential
required cuts.
10:18:09 AM
Representative Story began the presentation with slide 2.
She reminded the committee that there was a constitutional
obligation to maintain the school system. The bill proposed
inflation-proofing the Base Student Allocation (BSA), which
would help ensure strong schools and protect important
programs. She mentioned the importance of knowing future
costs when designing a budget, whether it be a personal
budget or governmental. The bill would implement a "wise
educational policy," which related to the importance of
working together.
Representative Story indicated that district budgets were
assembled in November and were often due to municipalities
in March. However, the legislative process was often not
completed before the budget due date, which meant adjusting
the budget and making the applicable reductions based on
budget numbers. The district would often plan for cuts, and
the community would have to come together and decide which
services to cut. She noted that these cuts often undermined
public confidence. Working together as policy makers was
very important. The legislature had heard from school board
members for a number of years that the ability to determine
a fixed portion of the budget was favored. She mentioned
that in order to receive federal funding, the state had to
abide by federal laws, and there were accountability plans
in place that must be followed. Every school was given a
star rating out of five, and schools were required to have
a plan to increase their star rating.
10:23:35 AM
Representative Story continued to slide 3 to discuss the
increment of inflation proofing. She explained that by
introducing inflation proofing to the BSA formula, the bill
provided fair and steady revenue that would be tied
directly to Alaska's economy. This would be done by using
the Consumer Price Index (CPI) for urban Alaska from the
United States Borough of Labor Statistics. She relayed that
Legislative Finance Division (LFD) recommended using the
CPI because it was more reflective of Alaska's economy
rather than national trends. She reminded the committee of
a study by the Institute for Social and Economic Research
(ISER) that had been shared in a previous meeting that
found, based on the CPI, that Alaska was just below average
when it came to school funding.
10:24:44 AM
Co-Chair Foster noted Co-Chair Merrick and Representative
Rasmussen were online.
Representative Wool asked if she had considered using core
inflation for the formula instead, which represented CPI
minus energy and food. He believed that it was what the
federal government used.
Representative Story responded that she had not. She
explained that the formula would be discussed in more
detail later in the presentation.
Co-Chair Foster commented that the inflation proofing would
be tied to CPI in urban Alaska. He wondered if there was a
CPI for rural Alaska.
Representative Story indicated that LFD had recommended
using CPI, and the term "urban Alaska" related simply to
the name. She differed to Alexei Painter from LFD to
explain the choice in more detail.
Co-Chair Foster asked if there was a rural CPI for Alaska.
ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
responded that urban Alaska reflected Anchorage
specifically, and that there was not a rural CPI or a CPI
calculated for other communities in Alaska. There had been
studies that looked at those costs, such as the
aforementioned study by ISER, but there was not a formal
CPI.
Representative Story thought that was why Dr. Dayna DeFeo
from ISER had adjusted for Anchorage and adjusted for other
economic cost factors in the formula. The adjustment
acknowledged the cost of doing business in more rural
communities.
ARIEL SVETLIK, STAFF, REPRESENTATIVE ANDI STORY, explained
how inflation was used to calculate BSA for a fiscal year.
The bill averaged three previous calendar years of
inflation against the fiscal year used in Alaska as
recommended by LFD. This smoothed out significant jumps and
drops in inflation. She pointed out there was a gap year
added into the formula which would allow school communities
to know their allocation ahead of time. This would help the
schools craft their budgets and better meet student needs.
She addressed slide 4 which showed inflation in Alaska over
the last decade. The chart was sourced from LFD. She
pointed out that the headings included both calendar years
(CY) and fiscal years (FY) and that the CPI data was
provided by the Department of Labor and related only to
Anchorage. Any price fluctuation in Anchorage would move
out to other locations, and the BSA formula would help to
adjust for the needs of other communities.
10:29:40 AM
Representative Wool asked Ms. Svetlik to explain the CPI
data in more detail.
Ms. Svetlik deferred to Mr. Painter.
10:30:16 AM
Mr. Painter explained that CPI calculation had an index
year, which was set at 100. He believed the number was set
during the 1980s. The CPI was calculated as an increase to
the index and represented the full index going back to the
reference year.
10:30:45 AM
Representative Wool asked for more information on when the
index year was set.
Mr. Painter did not remember the exact year, but it was in
the 1980s.
Representative Wool shared his understanding that if the
CPI was at 220, that would mean that it was a little more
than double the price it was when it was initiated
considering that 100 was the index. He asked if LFD ever
used core inflation or just CPI.
Mr. Painter indicated that CPI was used because it was the
most easily found and available number. He thought it would
be a policy call if the legislature wanted to pull
additional costs. During the last district cost study in
2005, costs specific to the school district were studied
and a new index was formed based on those costs. He noted
that would be more time consuming, but it was a policy
decision.
10:32:16 AM
Ms. Svetlik pointed to the numbers in the side bars on
slide 4. She explained that the numbers referred to what
the percentage of growth would be per fiscal year based on
the preceding calendar years. For FY 22, the increase would
be 1.11 percent, which resulted from averaging CY 18
through CY 20. The idea was to make these numbers available
prior to the finalization of the following year's budget.
Ms. Svetlik advanced to slide 5 and relayed that the
example on the slide related to FY 23. The reason she was
using FY 23 was because the numbers were currently
available in order to make accurate projections. If the
legislature were to increase the BSA, there would be a $66
increase in the BSA. She reiterated that by averaging 3
years together, the formula would smooth out significant
swings and dips in inflation.
10:35:05 AM
Representative Story addressed slide 6 which highlighted
that school funding was a fundamental statewide economic
issue. She surmised that the best way to attract new
residents, build a skilled workforce, and maintain a strong
economy was ensure the quality of schools in the area. It
was a way to provide a solid base and a way of providing
some stability. She indicated there was invited testimony.
Co-Chair Foster asked if the bill had been heard by the
House Education Committee. He wondered if she had heard
from rural schools about the Anchorage CPI being used. He
noted the costs in rural Alaska were higher. He asked if
$66 per student would be enough for rural schools and
whether rural schools thought the formula would work for
them.
Representative Story reminded the committee that the $66
BSA increase would be adjusted for school size and the
applicable multipliers.
10:38:58 AM
Representative Carpenter referred to slide 4. He averaged
the 3 years together, which were the percentages
highlighted in yellow on the slide. He calculted it was a
1.58 or 1.6 percent average inflation over the 3 years. He
suggested that 6 out of the 10 years were less than what
the average was, and in only 3 out of the 10 years was
there inflation that was greater than the average. He
wondered what the bill's goal was. He thought if the state
was covering cost increases and fluctuations from year to
year, then it would be looking at a cost adjustment every
year that would reflect the inflation change for every
year. He drew attention to CY 20 [FY 22] on the slide and
pointed out that the CPI percent change was negative. In a
year like CY 20, an increase would not be needed. He
wondered why the legislature would not just raise the
budget.
Representative Story responded that she averaged 3 years of
data for the purpose of preventing large swings. She noted
that the invited testifiers later in the meeting would
attest to the importance of an average. Also, she wanted to
leave room for the legislature to adjust the BSA to allow
for other targeted funding for things like investment in
reading programs. These adjustments were reflective of the
Alaska economy rather than the national economy. She was
not trying to solve all of the problems with education
funding, but she was simply acknowledging that there were
fixed costs, and the costs could rise.
10:42:58 AM
Representative Carpenter agreed that costs increased due to
inflation. He was trying to explain that the rising costs
for inflation were sometimes less than a single percentage
point, as seen on slide 4 from CY 15 to CY 17. However, the
budget would be increased by an average of 1.5 percent for
CY 15 through CY 17 because there was a desire to grow the
budget as opposed to covering the cost increase in a given
year.
Representative Story deferred to Ms. Svetlik because she
understood that Ms. Svetlik did the math on the slide.
Ms. Svetlik clarified that LFD did the math on the slide.
She explained that the 1.5 percent average was for CY 18
through CY 22. Representative Carpenter was talking about
CY 15 through CY 17. She agreed that the average that would
come from CY 15 through CY 17 would be much smaller. In
FY20 [CY18], there would only be about 0.5 percent increase
of the BSA even though there was a 3 percent increase in
CPI. There was a slight lag in the rate of growth as
compared to the rate of inflation because she was used real
number to make projections rather than making up the
numbers. It was not a perfect system, and the sponsor was
open to other suggestions. However, budget growth was not
always necessarily a 1.5 percent average as that average
reflected only 3 years of data. She suggested that he could
ask LFD to create a projection for all of the years for
extended clarity.
10:45:02 AM
Representative Carpenter thanked Ms. Svetlik for the
correction. He did not mean to imply that the average would
be 1.5 percent for all years and understood that it
represented a 3-year average. He was using it as a
demonstration that the bill would grow the BSA by an
arbitrary percent that would not necessarily relate to the
cost increase for that particular year. Instead, it
represented a cost increase over multiple years. If in the
2 previous years the legislature had already spent the
money, then budgeted costs may not be covered in the cost
increase. He suggested that a conversation should be had to
discuss a different mechanism to cover the costs.
Representative Story appreciated the comments. She had
talked to districts that reported that the large 4.88
percent CPI increase [in CY 21/FY 23] would be spread out
and help the prior years as well. It was what the chief
financial officers thought would work best as a predictable
number. She hoped the committee would get to the invited
testifiers in the present meeting.
10:46:49 AM
CHRIS REITAN, SUPERINTENDENT CRAIG CITY SCHOOL DISTRICT
(via teleconference), spoke in support of HB 273. He
indicated that the bill would provide the mechanism for the
State of Alaska to help address the annual inflation costs
that Kindergarten through grade 12 schools endure for
education. The BSA had not been addressed by the
legislature since 2017. It was necessary to address the
increasing fixed costs that were imbedded in school budgets
that reduced the amount of funds that could be dedicated to
classroom instruction and to improved educational content.
He relayed that medical insurance was one of the most
expensive fixed costs within school budgets, and it
increased annually. It accounted for more than 12.5 percent
of the Craig City School District's budget. Heating fuel
oil had increased more than 25 percent since 2015, which
represented an increase that occurred prior to the current
oil increases. Since FY 21, heating oil costs had increased
by 64 percent. Freight had increased by 6 percent [since FY
21]. He noted that these were only a few examples of fixed
cost increases to which school districts must respond. He
thought that HB 273 provided a consistent and reliable
mechanism for the state to invest in the educational needs
of children. He thanked members for the opportunity to
testify in support of the bill.
10:49:40 AM
Representative Josephson asked Mr. Reitan to restate some
of the figures he had mentioned.
10:50:21 AM
JIM ANDERSON, CHIEF FINANCIAL OFFICER, ANCHORAGE SCHOOL
DISTRICT (via teleconference), spoke in support of HB 273.
He referred to a graph titled, "ASD School Funding since
2017," which he had provided to the committee (copy on
file). He hoped the visual would show how the "fiscal
cliff" would affect Anchorage specifically, and why the
fiscal cliff existed. He pointed out the red line at the
top of the chart, which reflected the BSA's inflationary
increase based on Anchorage's CPI from FY 17 through FY 22.
He noted that the rates from January of FY 22 through
January of FY 24 were estimates based on a 2 percent steady
inflation rate, but it was likely that FY 22 might be
significantly higher than estimated.
Mr. Anderson continued by explaining that the grey, light
blue, and gold bars showed BSA equivalent funds that helped
offset structural deficits over the last several years. The
Anchorage School District (ASD) had an applied fund balance
for two years as well as federal relief money to maximize
educational opportunities for the past five years. He
indicated that FY 22 and FY 23 relied heavily on federal
Elementary and Secondary School Emergency Relief Funds
(ESSER), however there were not enough federal funds
remaining to account for the structural deficit in FY 24.
The inflationary costs for ASD had averaged around $10
million to $12 million dollars per year for the last 6 or 7
years. He explained that while one-time funds were helpful,
those funds hid the structural deficit of more than $40
million.
Mr. Anderson noted the district's liability insurance had
increased by 100 percent in the last few years due to
nationwide challenges. It had cost Anchorage $21,000 per
school district employee per year to cover medical
benefits. He compared this number to Seattle, Washington,
which was $12,000 per year and Atlanta, Georgia, which was
$11,000 per year. The red line on the graph showed gaps
between the one-time funding that had been used by the
district. Since 2017, the district implemented several
measures to reduce the rate of increase for medical
insurance costs. He emphasized that this did not reduce
costs, but simply reduced the rate at which the costs
increased. He explained that the inception of the Alaska
Middle College School had a low overhead and cost the
district about $10,000 per student. He compared this cost
to the district's 8 brick and mortar high schools which
cost an average of $13,000 to $18,000 per student,
depending on the other forms of money that were dedicated
to those schools. The Alaska Middle College School helped
increase revenue as well as reduce costs for over 200
students.
Mr. Anderson indicated that the district had built a
relationship with the Lower Yukon School District's (LYSD)
Kusilvak Career Academy, which benefited students from both
districts. The LYSD allowed ASD students to take courses
and get certifications for a quarter of a school year at a
time. It opened up many slots for ASD students, so both
districts benefited from the relationship. The reality was
the school district had been hiding a growing structural
deficit and there had to be measures taken in order to move
forward and allow the district to enact multi-year plans.
It typically took at least 3 years to see changes in
student outcomes from a new program. The first year
involved training school district employees, the second
year was when students started to get consistent
instruction through the new program, and the third year was
generally when improvement could be seen. When only one
year of money was provided, it did not allow for the
implementation of three-year programs because it was too
uncertain. He hoped Alaska would implement an inflation-
proof BSA so that districts could implement multi-year
strategies for improved student outcomes. He concluded that
HB 273 and HB 272 would help accomplish the necessary first
steps.
10:57:59 AM
HEIDI TESHNER, DIRECTOR, FINANCE AND SUPPORT SERVICES,
DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT (via
teleconference), reviewed the two fiscal notes for HB 273
by the Department of Education and Early Development. The
first was a zero fiscal note with the control code vICxU.
The fiscal note was for informational purposes only and
showed a general fund transfer to the Public Education Fund
(PEF).
Ms. Teshner reviewed the second fiscal note, also by the
Department of Education and Early Development, which had
the control code RIhvb. The fiscal note used the CPI for
urban Alaska as prepared by the United State Department of
Labor for 2019 through 2021 and arrived at an average
percentage difference of 1.72 percent. The average
percentage difference was applied to the BSA for FY 23 and
totaled $5,930, which resulted in a CPI of $6,032. Using
the FY 23 projected average daily membership counts and the
CPI adjusted BSA of $6,032, the new estimated total state
entitlement would increase by approximately $26.1 million.
The effective date of this bill would be July 1, 2024 in FY
25. She added that the third page of the fiscal note showed
the projected fiscal breakdown by school district.
Representative Story noted there were a couple of other
handouts in member packets.
Ms. Svetlik indicated that LFD had provided a theoretical
fiscal note for the committee's review, titled, "K-12
Foundation Formula BSA Adjusted for Inflation - 3 Year
Average" (copy on file). She explained that the handout
showed what the growth would look like if HB 273 were to be
combined with HB 272. She noted that it was an incremental
increase, and that the chart showed the projected ways in
which the increments would grow.
11:02:00 AM
Representative Wool shared his understanding that HB 273
added an inflation formula using CPI and 3 previous years'
averages. He compared this to HB 272, which he thought
proposed an adjustment to the BSA starting in 2017 and
using a similar formula. He asked if his understanding was
correct.
Representative Story suggested that he refer to the packet
for HB 272 (copy on file) which showed how the numbers were
determined. She explained that she did not go back to 2017.
She started in FY 20, which included around $30 million
that was outside of the formula. However, this was vetoed
by the governor, so the $30 million was inserted back into
the formula when doing the calculations. The increments
showed about a $30 million increase when inflation
proofing. The $30 million being inserted back into the
formula allowed for inflation proofing for FY 21 and FY 22.
She explained that that is how the $232 BSA increase
projection came about. Then, three years were averaged to
arrive at the $14 million projected increment for the FY 24
BSA with inflation. The chart showed a minus inflation year
as well, which meant that there was a $71 million
cumulative increase. She hoped to forward fund education
within the formula by $57 million. The bills complimented
one another and gave an idea of what it might look like to
inflation proof. It was important to note that some members
wanted to see certain programs funded, and by doing a
modest adjustment it left room for strategic funding for
the programs in which members might be particularly
invested. She thought it was important to think about
educational policy and how the bodies affect one another.
Co-Chair Foster thanked the presenters and reviewed the
agenda for the afternoon. He reminded members of the
amendment deadline for the operating budget.
HB 273 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 272 & HB 273 Public Testimony Rec'd by 031422.pdf |
HFIN 3/17/2022 9:00:00 AM |
HB 272 HB 273 |
| HB 273 Theoretical Fiscal Note.pdf |
HFIN 3/17/2022 9:00:00 AM |
HB 273 |
| HB 272 HB 273 Public Testimony Rec'd by 031622.pdf |
HFIN 3/17/2022 9:00:00 AM |
HB 272 HB 273 |
| HB 273 Public Testimony incl Ktkn Resolution Rec'd by 031722.pdf |
HFIN 3/17/2022 9:00:00 AM |
HB 273 |