03/15/2010 08:00 AM House EDUCATION

                                                                                                                                
                                                                                                                              
        HB 350-PUBLIC SCHOOL FUNDING: LOCAL CONTRIBUTION                                                                    
                                                                                                                                
8:04:07 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON announced that the  first 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."                                                                 
                                                                                                                                
8:05:04 AM                                                                                                                    
                                                                                                                                
CHAIR  SEATON, after  first  determining no  one  else wished  to                                                               
testify, closed public testimony on HB 350.                                                                                     
                                                                                                                                
8:05:38 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON  refreshed members on the  purpose of HB 350.   This                                                               
bill  would address  the local  contribution to  the "basic  need                                                               
component,"  which is  funded under  the  foundation formula  for                                                               
school funding.   Under the bill,  the amount of the  "basic need                                                               
component" does  not change,  but the amount  of state  and local                                                               
effort will  change.  He  stated that the bill  effectively would                                                               
provide  differential  tax  relief to  various  school  districts                                                               
across  the state.    Thus,  funds are  removed  from the  school                                                               
education  fund   and  used  for  differential   tax  relief  for                                                               
municipalities.   The goal of HB  350 is to apply  an even method                                                               
of  taxation, one  that is  proportionally fair  and economically                                                               
sustainable by setting a uniform  mill rate at the lowest current                                                               
rate.   The result will be  that a municipality will  not have to                                                               
pay more  than its current local  tax mill rate.   He paraphrased                                                               
from a  portion of the  sponsor statement, which read  as follows                                                               
[original punctuation provided]:                                                                                                
                                                                                                                                
     Legislation  enacted   in  2001  changed   the  funding                                                                    
     formula  to require  that only  half  of the  increased                                                                    
     current  year's property  value  over  the base  year's                                                                    
     value be  counted.   However it added  this to  a fixed                                                                    
     year (FY  99) to determine  the property value  for the                                                                    
     purposes  of  calculating  required  local  effort  for                                                                    
     education.   Use of  a fixed base  year instead  of the                                                                    
     previous  year to  calculate full  and  true value  and                                                                    
     local  effort  contribution  has   lead  to  a  growing                                                                    
     disparity between districts.                                                                                               
                                                                                                                                
     HB  350  will address  this  problem  by requiring  the                                                                    
     local  contribution   of  a  city  or   borough  school                                                                    
     district to  be derived  from a uniform  rate of  a 2.7                                                                    
     mill  tax  levy on  the  full  and  true value  of  the                                                                    
     taxable property  in the  district as  of January  1 of                                                                    
     the  second  preceding  fiscal year  plus  50%  of  the                                                                    
     increase in value to the following year.                                                                                   
                                                                                                                                
     Under   the  current   formula,   areas  with   growing                                                                    
     populations are  given an ever  greater tax  break than                                                                    
     stable areas.   Districts containing  older communities                                                                    
     are  therefore  required  to   pay  higher  taxes  than                                                                    
     expanding districts.  HB 350  will apply an even method                                                                    
     of  taxation,  one  that  is  proportionally  fair  and                                                                    
     economically sustainable.   It  has set a  uniform mill                                                                    
     rate  at the  lowest  current rate  so no  municipality                                                                    
     will have to  pay more than its current  local tax mill                                                                    
     rate                                                                                                                       
                                                                                                                                
CHAIR SEATON  referred to  a chart  in members'  packets, stating                                                               
that  currently the  state transfers  $77 million  a year  out of                                                               
available money  for education to  municipalities as  tax relief.                                                               
This  does  not change  the  districts'  funding, but  funds  are                                                               
transferred  differentially  to   districts.    The  continuously                                                               
mounting increase in education costs  will result in limiting the                                                               
base student  allocation (BSA) increases.   Most school districts                                                               
support "fixing" this  system before it consumes  a major portion                                                               
of the state's education funds.                                                                                                 
                                                                                                                                
8:09:27 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KELLER pointed  out  that  the "differential  tax                                                               
relief" has been  perceived as an unfair  allocation to districts                                                               
but was intended to provide  additional funds to school districts                                                               
that are  growing in size.   He referred  to a graph  in members'                                                               
packets titled  "Percent Change is Assessed  Valuation of Taxable                                                               
Property in  the Mat-Su  Borough."  He  explained that  the costs                                                               
increase  with additional  students in  the Mat-Su  Borough.   He                                                               
agreed that "something  may need to be fixed" but  the problem is                                                               
not an  "across the  board" difference in  taxes needed  from the                                                               
local  communities.   The tax  burden  on landowners  is "out  of                                                               
sight."  To  address this issue, the state  provided general fund                                                               
(GF) dollars to local districts that  are increasing in size.  He                                                               
said he  will oppose the  bill since he  does not agree  with the                                                               
approach taken in HB 350 to address the problem.                                                                                
                                                                                                                                
8:11:05 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P. WILSON pointed out  that school bonds are being                                                               
voted down.  She remarked  that many students are using temporary                                                               
school  facilities yet  the communities  have  voted down  school                                                               
bonds for new schools.                                                                                                          
                                                                                                                                
8:11:45 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KELLER requested  further information  on whether                                                               
the Matanuska-Susitna  Borough School  District has  not approved                                                               
school bonds.                                                                                                                   
                                                                                                                                
REPRESENTATIVE P. WILSON related it has  done so in the past, but                                                               
she was unsure what has currently happened.                                                                                     
                                                                                                                                
REPRESENTATIVE   KELLER  maintained   that  his   district  faces                                                               
challenges, noting  it is not  just the lack of  facilities since                                                               
expanding at  the rate  it has  costs money  for teachers  and to                                                               
provide start up costs for schools.                                                                                             
                                                                                                                                
8:12:34 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON  stated HB  350 was  constructed to  accommodate the                                                               
growth in the various communities.   This bill would not directly                                                               
affect the mill  rate that is assessed on each  home or business.                                                               
This  bill  does   not  create  a  direct   tax.    Additionally,                                                               
communities also  have the option  to find other  funding sources                                                               
for  education.   Some  districts, such  as  the Kenai  Peninsula                                                               
Borough, have adopted  a sales tax dedicated to  education.  This                                                               
bill  provides a  method of  calculation based  on valuation,  he                                                               
stated.                                                                                                                         
                                                                                                                                
8:13:55 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MUNOZ referred to  the handout in members' packets                                                               
titled "Mill Equivalent Change"and noted  that the City of Juneau                                                               
has participated  at 4  mills.   She asked for  the effect  of HB
, and if it would lower the mill rate to 2.7 mills.                                                                          
                                                                                                                                
CHAIR SEATON agreed  it would lower the mill rate.   He explained                                                               
it would  treat all districts across  the state at the  same mill                                                               
rate.   He referenced  a table in  members' packets  titled "Mill                                                               
Equivalent Change" to indicate the  mill differences.  He further                                                               
explained  that if  a community  grew  substantially since  1999,                                                               
that the  millage rate  would be  at a much  less valuation.   He                                                               
referred  to  Craig,  which  is  still  paying  4  mills  on  its                                                               
valuation,  whereas Saint  Marys increased  its tax  base and  is                                                               
paying 2.7 mills.   He interpreted that communities  that are not                                                               
growing will contribute  a higher portion of the basic  need.  He                                                               
pointed  out  the  impact on  several  districts,  including  his                                                               
district, the Kenai Peninsula Borough, which is set at 3 mills.                                                                 
                                                                                                                                
8:16:36 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   MUNOZ  asked   for   clarification  on   whether                                                               
communities have a choice.                                                                                                      
                                                                                                                                
CHAIR SEATON answered no.  He  elaborated that the basic need for                                                               
education is calculated in the  foundation formula.  The original                                                               
calculation  for local  contribution  was calculated  at 4  mills                                                               
times the assessed valuation.   In 2000, the statute was changed.                                                               
Initially, that  legislation had  a "rolling  look back"  but the                                                               
bill  was amended  to  establish a  "given year"  to  use as  the                                                               
inception  year.   He offered  his belief  that since  the change                                                               
happened late in the session  an unintended consequence happened.                                                               
This bill is to ensure adequate state funding for education.                                                                    
                                                                                                                                
REPRESENTATIVE  KELLER  noted that  if  the  committee takes  the                                                               
position that this should be  equitable across the state, has the                                                               
impact for unincorporated boroughs shall  be considered.  He also                                                               
asked if the bill should  contain a requirement for local payment                                                               
since   the   legislature   acts   as  the   school   board   for                                                               
unincorporated boroughs.                                                                                                        
                                                                                                                                
8:19:22 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE EDGMON stated that  the overall costs are affected                                                               
by  how  schools are  constructed  and  heated, such  as  whether                                                               
diesel fuel  is used to heat  the school versus natural  gas.  He                                                               
offered to provide the "numbers" for his district.                                                                              
                                                                                                                                
CHAIR SEATON  asked members  to focus on  the specific  issue the                                                               
bill addresses.                                                                                                                 
                                                                                                                                
REPRESENTATIVE  KELLER commented  that the  struggle is  with the                                                               
growth  or  the differential  costs  for  operation and  not  the                                                               
diesel costs.                                                                                                                   
                                                                                                                                
8:20:34 AM                                                                                                                    
                                                                                                                                
CHAIR  SEATON  asked the  department  to  explain how  the  local                                                               
contribution occurs in the unorganized boroughs.                                                                                
                                                                                                                                
8:21:11 AM                                                                                                                    
                                                                                                                                
EDDY  JEANS, Director,  School  Finance  and Facilities  Section,                                                               
Department of  Education and  Early Development  (EED), explained                                                               
that the Regional Education Attendance  Areas (REAAs) do not have                                                               
a  required local  contribution based  on property  values.   The                                                               
REAAs' local contribution is through  the form of the "impact aid                                                               
contribution."   Thus,  the impact  aid  is in  lieu of  property                                                               
taxes paid  by the  federal government for  people who  reside on                                                               
federal lands that are not subject  to taxes.  He offered that he                                                               
would consider the  impact aid as the local  contribution for the                                                               
REAAs.   He pointed out that  some REAA's have more  federal land                                                               
than  others  and  those  with  a  smaller  or  larger  tax  base                                                               
contribute   more  or   less,  accordingly.      He  noted   some                                                               
municipalities  have  a larger  tax  base  than others,  and  are                                                               
required  to  contribute  more   to  support  education.    Those                                                               
municipalities  with a  smaller  tax base  would also  contribute                                                               
less.   The  change  that is  before the  committee  today is  to                                                               
achieve  uniformity  on  the  mill levy  in  the  required  local                                                               
effort.   As Chair Seaton  noted, the basic  education foundation                                                               
formula  calculates the  basic need,  which is  the adjusted  ADM                                                               
multiplied by the base student  allocation (BSA).  Once the basic                                                               
need is established,  "we determine who is going to  pay."  Three                                                               
components are  considered:  required local  contribution, impact                                                               
aid, and state aid.   The required local contribution ranges from                                                               
2.7 mills to 4 mills on  real and personal property values, using                                                               
the schedule previously  referred to by Chair Seaton.   This bill                                                               
would  level the  required local  contribution  from the  current                                                               
mill rate  to 2.7 mills across  the board.  It  does not increase                                                               
the amount of  funding for the foundation formula  program but it                                                               
simply shifts it from who is paying, local versus state.                                                                        
                                                                                                                                
CHAIR SEATON  asked for clarification  on the statement  that the                                                               
amount of funding to a school district would not change.                                                                        
                                                                                                                                
MR,  JEANS  responded that  he  is  referring  to the  amount  of                                                               
funding to a school district via the funding formula.                                                                           
                                                                                                                                
8:23:48 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P.  WILSON  related her  understanding  that  the                                                               
impact aid from the REAAs would not be affected.                                                                                
                                                                                                                                
MR. JEANS responded that the  REAAs are required to contribute 90                                                               
percent of the impact aid that they receive.                                                                                    
                                                                                                                                
8:24:17 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KELLER asked  whether  the committee  has used  a                                                               
property valuation to  assess how the impact aid  compares to the                                                               
2.7 mill rate under consideration.                                                                                              
                                                                                                                                
MR.  JEANS answered  that property  values  do not  exist in  the                                                               
unorganized areas.  He offered  that the closest comparison would                                                               
be the  per pupil valuation on  the impact aid compared  to local                                                               
effort.   He recalled comparisons  that showed a number  of REAAs                                                               
at  the top  of the  scale that  contribute more  money on  a per                                                               
student basis, through impact aid,  than many municipalities.  He                                                               
noted some REAAs at the bottom  of the scale are not contributing                                                               
much since  not many  people live  on federal  lands.   The range                                                               
varies considerably, he stated.                                                                                                 
                                                                                                                                
REPRESENTATIVE  KELLER stated  that  if the  committee's goal  is                                                               
statewide  uniformity  the committee  will  need  to broaden  its                                                               
scope.                                                                                                                          
                                                                                                                                
8:25:29 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MUNOZ  asked whether  the impact  aid is  based on                                                               
economic activity on federal lands.                                                                                             
                                                                                                                                
MR. JEANS  answered no, that it  is based on the  land being non-                                                               
taxable land.                                                                                                                   
                                                                                                                                
8:25:46 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON asked  if the people living  on federal, non-taxable                                                               
land are not taxed by the state.                                                                                                
                                                                                                                                
MR. JEANS  related that  the impact  aid is  for lands  that have                                                               
been  moved from  state tax  rolls due  to some  type of  federal                                                               
intervention.    Thus, lands  conveyed  under  the Alaska  Native                                                               
Claims  Settlement  Act  (ANCSA)   are  non-taxable  lands  until                                                               
developed and the  people living on those  lands generate federal                                                               
impact aid.   Additionally, people  living on military  bases are                                                               
not taxed and also generate federal impact aid.                                                                                 
                                                                                                                                
8:26:57 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MUNOZ moved  to report  HB 350  out of  committee                                                               
with  individual  recommendations  and  the  accompanying  fiscal                                                               
notes.                                                                                                                          
                                                                                                                                
REPRESENTATIVE KELLER objected.                                                                                                 
                                                                                                                                
8:27:34 AM                                                                                                                    
                                                                                                                                
A  roll call  vote  was taken.    Representatives Seaton,  Munoz,                                                               
Gardner,  Buch, Edgmon,  and Wilson  voted  in favor  of HB  350.                                                               
Representative Keller  voted against it.   Therefore, HB  350 was                                                               
reported out of the House  Education Standing Committee by a vote                                                               
of 6-1.                                                                                                                         
                                                                                                                                
8:28:27 AM