Legislature(2009 - 2010)CAPITOL 106
02/19/2010 08:00 AM House EDUCATION
| Audio | Topic |
|---|---|
| Start | |
| HB311 | |
| Overview: Alaska Virtual Academy | |
| HB350 | |
| HB297 | |
| HB206 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 310 | TELECONFERENCED | |
| += | HB 206 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| *+ | HB 350 | TELECONFERENCED | |
| += | HB 311 | TELECONFERENCED | |
| += | HB 297 | TELECONFERENCED | |
HB 350-PUBLIC SCHOOL FUNDING: LOCAL CONTRIBUTION
9:10:11 AM
CHAIR SEATON announced that the next order of business would be
HOUSE BILL NO. 350, "An Act relating to the local contribution
to public school funding; and providing for an effective date."
9:11:08 AM
KATY KOESTER, Staff, Representative Paul Seaton, Alaska State
Legislature, presented HB 350, explaining that it will change
the required local effort, which is the minimal amount that
municipalities are mandated, through statute, to allocate for
education, and is determined by assessing the taxable real and
personal property of a district. Directing attention to the
committee packet, and the charts labeled "History of How
Required Local Effort Works" and "How Required Local Effort
Works Under HB 350," Figures 1 and 2 respectively, she provided
an illustrated, theoretical example of local effort, using Craig
and the Kenai Peninsula Borough (KPB).
9:12:30 AM
CHAIR SEATON asked if the examples use actual mill rates.
MS. KOESTER explained that the idea is to illustrate how actual
mill rates would be effected by HB 350. She offered the
disclaimer that the examples are for illustrative purposes only
and do not reflect actual shifts in property values or current
mill rates.
9:14:13 AM
REPRESENTATIVE MUNOZ noted 4 mills as the minimum required local
contribution, and asked about the allowed maximum contribution.
MS. KOESTER said that would constitute funding to the cap, and
deferred to the Department of Education and Early Development
(EED).
9:15:24 AM
MS. KOESTER addressed Figure 1, comparing the computation of
local effort based on two homes, one located in Craig and one in
KPB, equally valued at $100,000. Local effort was determined in
1990, by applying the 4 mill rate to the two year previous
assessment. In this case, $100,000 for both homes held a 1988
value of $100,000, resulting in a local contribution requirement
of $400 in both communities. For 2001, the example indicates no
change in Craig, but since 1988 the KPB did experienced growth
and the home value increased to $200,000. Thus, applying the 4
mill rate, based on the prior two year assessment, the
contribution level remains at $400 in Craig, but increases to
$800 in KPB. The legislature realized the disparity that
communities were experiencing, based on growth versus non-growth
areas, and passed SB 174, in 2001, to freeze the assessed values
at the 1999 level, for local effort computation purposes. The
new formula uses the 1999 assessment as a base, plus any value
increase over two years, at the 50 percent level. Execution of
the new formula finds the KPB example home, valued in 1999 at
$200,000. By using a two year assessment look-back factor of 50
percent, $50,000, and applying the 4 mill rate, the resulting
local effort contribution is $1,000; equating to a 3.3 mill
rate. Without the SB 174 formula, the local effort contribution
would have been $1,200. The actual mill rate in areas
experiencing growth since 1999 is steadily decreasing, and will
continue on this path, as property values increase. The
committee is attempting to determine if this is fair to all
areas of the state.
9:19:30 AM
MS. KOESTER turned to Figure 2, and explained how HB 350 changes
the computation of local effort to bring equality to the same
scenario. The bill sets a uniform mill rate of 2.7, applies a
temporary tax break in areas experiencing growth, and uses a
shorter look-back. The new formula uses the value difference
between the two year and one year look-back assessment. The
home values for 2008 are $100,000 in Craig $300,000 in KPB. In
2009, the Craig home remains valued at $100,000, but, due to
municipal growth, the KPB home is $320.00. With the passage of
HB 350, the 2010 local effort for the Craig property, with no
growth to track, would be valued at 2.7 mills, or $270.00.
However, the KPB home shows an increase between the two and one
year look-back assessment values. Calculation begins with the
$300,000 base, add the $10,000 for the 50 percent value increase
differential, and applying the 2.7 mill rate, for a local effort
contribution result of $837.00. The HB 350 formula provides an
equal contribution for all municipalities with a built in
temporary break for areas experiencing grown.
9:22:02 AM
REPRESENTATIVE MUNOZ asked what the loss of revenue would be, if
the bill were implemented.
MS. KOESTER directed attention to the fiscal note, and said the
state picks-up the difference in the mill rates. The department
has supplied a chart in the fiscal note to indicate the
increased state aid of $19 million.
REPRESENTATIVE MUNOZ asked what affect lowering the required
local effort would have on the ability of communities to
contribute beyond the minimal amount; would the percentage
decrease.
MS. KOESTER deferred to EED.
9:23:50 AM
REPRESENTATIVE GARDNER asked how the 2.7 mill rate was derived.
MS. KOESTER said 2.7 is the lowest mill rate being applied in
any district, and implementing it prevents any municipality
suffering the hardship of having a sudden rate increase.
9:24:46 AM
CHAIR SEATON confirmed that the Mat-Su, St. Maries, and Hoonah
districts are taxed at the 2.7 rate. He stated his belief that
the bill incorporates a means for the committee to bring a level
of fairness to the situation. The 50 percent look-back is
included, because with growth comes the need for further
infrastructure, and communities need funds to compensate
expansion. He opined that problems stem from the static 1999
baseline, causing some communities to always have a higher mill
rate than others, and speculated that a law suit may be
forthcoming if some action is not taken by the legislature.
9:27:39 AM
REPRESENTATIVE KELLER reflected on the communities he
represents, the typical demographic profile, and the lack of
control that residents have over rapidly changing property
values. He asked if there is precedent for a unified mill rate.
REPRESENTATIVE BUCH reported varying mill rates exist within the
municipality of Anchorage, depending on the availability of
services, such as fire and rescue.
CHAIR SEATON pointed out that the bill responds to the question
of whether the state is requiring the local effort of some
communities to be a higher percentage of the assessed evaluation
than others. He opined that, there are real equity problems as
assessments rise in some areas, and not others.
9:30:44 AM
REPRESENTATIVE P. WILSON noted that as people migrate to an
area, infrastructure needs are increased. She said it is one
thing to have taxes reflect the services provided, however the
schools are required to provide the same education to everyone.
According to the current formula, it is more difficult on the
areas that aren't growing than it is on the areas that are
experiencing growth. She opined, that the [SB 174] formula does
not appear to be fair.
9:32:53 AM
CHAIR SEATON clarified that the assessment has nothing to do
with the direct tax a homeowner on their house. It is a tax
contribution provided by the borough as a whole, calculated on
the property assessments of the area. The vehicle by which the
borough derives the funds is variable, and may include taxes on
sales, property, or other means.
9:34:13 AM
REPRESENTATIVE KELLER said the bill ultimately reduces the local
contribution burden, and increases the load on the state general
fund. A property tax in general is an unfortunate method of
paying for schools, he opined, as it tends to penalize, and
inhibit, owners from property improvement.
CHAIR SEATON explained that by continuing to use the base year
of 1999, more of a load will be placed on the state, and the
general fund contribution will become more disproportionate over
time, effectively reducing the actual value of the 4 mill
percentage.
REPRESENTATIVE KELLER requested a long range projection graph to
better understand the presumptions, of how HB 350 will
ultimately effect local effort and state contributions.
9:38:03 AM
REPRESENTATIVE EDGMON indicated his interest to receive further
information regarding all "the moving pieces that fit into
required local contribution, above and beyond just the mill rate
itself."
9:41:47 AM
EDDY JEANS, Director, School Finance and Facilities Section,
Department of Education and Early Development (EED), directed
attention to the committee packet, and referred to the EED chart
titled Mill Equivalent Change. He pointed out the column
labeled [Projected] FY 11, which lists the district mill rates,
and said 2.7 is the lowest mill equivalent on the full and true
value of a community, for that year. No district would
experience an increased contribution under HB 350. He referred
to Representative Munoz's previous question regarding the
meaning of local required effort, and said it relates to the
basic need aspect of the foundation formula. Basic need is the
entitlement allowed under the formula, and once calculated a
determination is made for the derivation of the funds utilizing
three sources of revenue. The required local contribution is
combined with federal impact aid, and any remaining entitlement
is made up from state funds. He said:
This particular piece of legislation impacts that
piece within basic need: who pays. It doesn't impact
the amount of additional local contribution above
basic need. The additional local contribution is the
equivalent of 23 percent of basic need in the current
year. ... The required local effort is based on mill
equivalents, applied to the full and true value, as
set by the state assessor for all municipalities
around the state.
MR. JEANS explained that full and true value is established by
assessing all real and personal taxable properties in a
community, including boats, cars, stores, and construction
companies. Certain communities may allow exemptions, at the
local level. For instance, Juneau does not tax boats, however,
the value of the boats in Juneau would be included in the full
value established by the state assessor, as part of the uniform
application for all communities. Referring again to the Mill
Equivalent Change chart, he indicated that in the first year of
the implementation of SB 174 nearly every district contributed
either 4 or 3.9 mills. He recalled that the intent of SB 174
was to provide municipalities, which were experiencing quick
economic growth, a tax break; the compounding factor was not
intended. Directing attention to the chart titled "State Cost,"
he pointed out that in FY 02, the basic need contribution by the
state was $3.6 million; a figure which might otherwise have come
from municipalities. Since the establishment of a base year,
and the inclusion of only 50 percent of the annual growth in
communities from 1999 forward, the effects of SB 174 on state
contributions to basic need, become apparent, and he read the
chart yearly totals, in millions: FY 03 - $9; FY 04 - $12.5;
and FY 05 - 18.8. He said:
When I realized what was happening ..., I brought this
to the Legislature's attention, because I didn't think
that was the intent of the legislation. But as you
can see the numbers start building pretty quick, and I
would say there was a sense of reluctance to remove
this state support out of the foundation program.
MR. JEANS, directing attention to HB 350, said the bill retains
the concept of providing municipalities a one year break.
Turning to the fiscal note, page 2, he explained the effect of
dropping all areas to a 2.7 mill rate, a cost to the state of
$18.7 million. The 50 percent one year look-back would also
cost the state $2.5 million. Subsequent years will realize
similar numbers, but the break is rolled forward each year into
the new base.
9:49:49 AM
CHAIR SEATON clarified:
You count 50 percent of that increase for one year,
but then the next year you pickup that other 50
percent, so then you're back to looking at that year
as being the base year of 100 percent of the assessed
evaluation, times the 2.7 [mill rate].
MR. JEANS concurred.
9:50:26 AM
REPRESENTATIVE KELLER asked what happens if there is a decline
in values.
MR. JEANS said the full 2.7 mills would be required. He pointed
out that, as indicated on the chart, some communities have not
seen growth since 2002, but are still paying 4 mills.
9:51:30 AM
CHAIR SEATON directed attention back to the fiscal note, and
said there would be an initial $21 million dollar base hit, of
which $18 million will occur, because the 50 percent factor is
being counted for the previous year only, and does not include
all the years back to 1999.
MR. JEANS agreed, and added that the look-back to 1999 is being
deleted, and the calibration is based on 2.7 mills.
9:52:17 AM
REPRESENTATIVE P. WILSON inquired whether the fiscal note, for
HB 350, includes the previously compounded figures.
MR. JEANS answered that HB 350, and the fiscal note, eliminate
the compounding factor, and 1999 base year. Communities will
realize the benefit of the 50 percent reduction for one year.
9:53:03 AM
REPRESENTATIVE P. WILSON acknowledged that the state will
continue to pay more, and more, under SB 174, and asked if the
chart shows the savings the state will realize by enacting HB
350.
MR. JEANS said it is not shown in the fiscal note. He pointed
out how the multi-year analysis assumptions from 3-4 years ago
did not prove to be accurate. A new model could be built, which
may not prove to predict the economy with any more assuredness.
The charts provided in the packet, and the fiscal note, provide
a mechanism to calculate the amounts, and indicate the fiscal
responsibilities for each portion of the state funding formula.
9:55:11 AM
REPRESENTATIVE P. WILSON cautioned that when the bill is
referred to the finance committee there may need to be a means
to further illustrate the point.
MR. JEANS replied that the best example is the state cost sheet,
which indicates that from FY 02-11, the state will have picked
up $77 million in local contribution for municipalities because
of SB 174. Comparing FY 10-11, the increase is only $4 million,
but from FY 08-09, the increase is $16 million. He stressed
that it is not possible to predict as accurately as it is to
illustrate what has occurred.
9:57:02 AM
REPRESENTATIVE MUNOZ noted that many communities fund beyond the
minimum contribution, to the cap, and asked about the effects of
HB 350 on these areas.
MR. JEANS pointed out that the districts benefiting, from the
2.7 mill, and HB 350 enactment, are reflected in the fiscal
note; listed by community. The education basic need burden is
being shifted from the local effort to the state, because
"somebody has to pay." However, the required local effort is
outside of the basic funding formula, a number that doesn't
change. Thus, municipalities will still be able to contribute
additional local revenue, above the basic foundation formula.
CHAIR SEATON interjected that federal regulations impose
limitations which restrict local contribution, as a means for
avoiding "rich districts." Additionally, he pointed out that
situations in districts are subject to change, and economic
growth, or student growth, remains subjective, and he requested
that the department submit further information, regarding
changing school needs, to the committee.
9:59:08 AM
CHAIR SEATON announced that HB 350 would be held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 206 Version P Amendment.pdf |
HEDC 2/19/2010 8:00:00 AM HEDC 3/1/2010 8:00:00 AM HEDC 3/8/2010 8:00:00 AM HEDC 3/17/2010 8:00:00 AM |
HB 206 |
| K12 Website.mht |
HEDC 2/19/2010 8:00:00 AM |
|
| FY02-11LocalEffortAssessed&educationWithMills-2Pager_10-22-09.xlsx |
HEDC 2/19/2010 8:00:00 AM HEDC 3/3/2010 8:00:00 AM HEDC 3/10/2010 8:00:00 AM HEDC 3/12/2010 8:00:00 AM HEDC 3/15/2010 8:00:00 AM |
HB 350 |
| HB 206 version P Sponsor Statement February 4, 2010.docx |
HEDC 2/5/2010 8:00:00 AM HEDC 2/10/2010 8:00:00 AM HEDC 2/12/2010 8:00:00 AM HEDC 2/19/2010 8:00:00 AM HEDC 3/1/2010 8:00:00 AM HEDC 3/8/2010 8:00:00 AM HEDC 3/17/2010 8:00:00 AM |
HB 206 |
| HB 206 Version P February 4, 2010.pdf |
HEDC 2/5/2010 8:00:00 AM HEDC 2/10/2010 8:00:00 AM HEDC 2/12/2010 8:00:00 AM HEDC 2/19/2010 8:00:00 AM HEDC 3/1/2010 8:00:00 AM HEDC 3/8/2010 8:00:00 AM HEDC 3/17/2010 8:00:00 AM |
HB 206 |
| Alaska Virtual Academy at Wrangell.ppt |
HEDC 2/19/2010 8:00:00 AM |
|
| Anchorage Enrollment Graphs1 (2).pdf |
HEDC 2/19/2010 8:00:00 AM |
|
| Kenai_LKSD_KTN_Sitka Enrollment Graph (2).pdf |
HEDC 2/19/2010 8:00:00 AM |
|
| HS Catalog_09-10.pdf |
HEDC 2/19/2010 8:00:00 AM |
|
| KPBSD Student Count Numbers.xlsx |
HEDC 2/19/2010 8:00:00 AM |
|
| Sponsor Statement HB 350.doc |
HEDC 2/19/2010 8:00:00 AM |
|
| HB350-EED-ESS-2-18-10.pdf |
HEDC 2/19/2010 8:00:00 AM HEDC 3/3/2010 8:00:00 AM HEDC 3/10/2010 8:00:00 AM HEDC 3/15/2010 8:00:00 AM |
HB 350 |
| Enrollment Numbers_Single Page1 (2).pdf |
HEDC 2/19/2010 8:00:00 AM |
|
| School District student count analysis.pdf |
HEDC 2/19/2010 8:00:00 AM |
|
| DG_Nen_Wra_Cord_Skag Enrollment Graph1.pdf |
HEDC 2/19/2010 8:00:00 AM |