Legislature(1995 - 1996)
03/09/1995 09:40 AM Senate FIN
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* first hearing in first committee of referral
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SENATE BILL NO. 70
An Act relating to the public school foundation
program; and providing for an effective date.
Co-chairman Halford directed that SB 70 be brought on for
discussion. JERRY BURNETT, aide to Senator Phillips, came
before committee. He explained that changes to the current
foundation formula contained within SB 70 consist of:
1. A change in the instructional unit calculation for
large elementary schools to help fund reduced
class sizes.
2. More local effort from school districts with low
millage rates for school support to increase taxpayer
equity throughout the state.
3. Changes in funding levels for very small schools
with
less then 16 students to encourage consolidation
or alternate service delivery.
4. Update of area cost differentials to more
accurately
reflect the cost of doing business in various
regions of the state.
5. Minor changes in law to improve administration of
the
foundation formula.
Mr. Burnett advised that the existing cost differential
would be eliminated and a school price index would be
established by region and reviewed every two years.
Districts with less than 16 students would not have their
own school.
DUANE GUILEY, Director, School Finance, Dept. of Education,
came before committee, voicing concern that the proposed
bill represents a significant shift of revenue from rural to
urban districts.
[The remainder of the minutes reflect transcription from
Tape SFC-95, #15, Side 1]
End: SFC-95, #13, Side 1
Begin: SFC-95, #15, Side 1
Mr. Guiley asked that both the administration and districts
be given time to review the school funding issue and bring
forth recommendations for the next legislative session.
Senator Phillips advised that he sponsored legislation, now
in Senate HESS, for a task force to review school funding
and provide recommendations next year. That option was
rejected by Senate HESS. The Senator voiced his hope that
the department would work with the legislature on the bill.
He acknowledged that the bill is not ideal. It does,
however, provide a "vehicle which all of us can look at and
deal with the school foundation formula . . . because there
are inequities in it right now." The intent is for everyone
to sit down and find a way to modify the formula.
Senator Sharp inquired concerning the number of districts
that meet minimum enrollment of eight and the number of
schools that would not meet the minimum were it not for
inclusion of the teacher's children. Mr. Guiley said he had
no statistics on that issue. Three facilities are currently
operated with less than eight students. A fourth, the
Beluga site on the Kenai Peninsula, has also been
identified as being in its last year of operation. Mr.
Guiley then advised that Meyers Chuck in the Southeast
Islands District has five students. Elfin Cove, in the
Chatham District, and the Telida School, in the Iditarod
School District, both have six. An additional school has
attendance of eight. The next size is ten. Regulations
state that a school program may begin when there are eight
students of elementary school age. That is defined as K-8.
There is no discussion either in statutes or regulations "as
to when an elementary or secondary program ends." The only
statutory reference says that if a school district drops
below eight students, the district board may declare itself
to be inoperative for the year that there are less than
eight students. There is no discussion of when a school
program ends.
Senator Sharp suggested that there is a "reverse incentive"
for a school district to declare that a school should be
closed. Mr. Guiley responded, "Certainly." The Senator
asked that the department check into the number of enrolled
students who are dependents of the school teacher.
Senator Rieger voiced his understanding that in the above-
cited schools, the funding community was started when there
were eight students. Enrollment then dropped. Mr. Guiley
responded affirmatively. Senator Rieger asked if there is a
difference in definition between a funding community and a
school. Mr. Guiley again answered affirmatively. He
explained that the consequence of a funding community is
that it establishes the minimal level of funding for a
school or a group of schools. In some cases a funding
community is many schools combined together. The largest
example is Anchorage where over 65 school buildings are
combined into one funding community. In very small sites,
one or two school buildings make one funding community. The
funding community establishes a floor, or minimum level of
funding. The greatest amount of funding comes with the
first increment of students. As students are added to the
community, each subsequent student generates less money than
the child before.
Senator Rieger asked if the logic behind funding communities
is that "a funding community equals the school." A minimum
number of eight students is the point at which a substantial
increment of money is needed because that is the point where
the school physical plant begins to operate. Mr. Guiley
concurred. He attested to fixed costs associated with
establishment of a school building and programs. It costs
less to add a student to an existing facility than to start
up a new school. That is the basis of the floor level of
funding for the funding community.
In response to a subsequent question from Senator Rieger
concerning how funding flows to a school once the minimal
level of eight students is reached, Mr. Guiley explained
that current statutes provide a minimal level of funding of
two units for any funding community. A list of funding
communities was produced by the Dept. of Education and
distributed to all school districts. Districts had an
opportunity for input into that list. The list has been
modified, since that time, by individual requests from
districts to establish additional funding communities. In
some cases, it has been modified when a district has
notified the department of intent to close a school and
delete a funding community. If there is a request to
establish a funding community, and, hypothetically, if that
funding community only had one child, that one child would
generate $122.0. If the same funding community was
established with two children, the two children would
generate the same $122.0. Children three, four, and five
would also generate that same $122.0. There is no
incremental funding until enrollment exceeds ten. The
eleventh child would thus generate incremental money. In
addition to the basic K-12 unit, any child with special
needs would generate money either through gifted and
talented or some other category of special education,
vocational education, or bilingual education. Supplemental
funding for vocational education is available for grades 9-
12. Bilingual is available for grades K-12. Special
education covers preschool through 12. Those are
supplemental units over and above the K-12 unit.
Responding to a further question concerning how the funding
would flow should the department not approve a funding
community for the hypothetical child, Mr. Guiley explained
that the child would be added to the largest funding
community in the district and would generate money as if the
child were being served at the larger funding community.
The district could then serve the child through a
correspondences program and any other itinerant service. If
the parent chose to enroll the child in state centralized
correspondence study, correspondence study would receive
funding for the child, and the district would receive no
funding. By statute, each school board in Alaska has the
legal obligation to provide a grade-level-equivalent program
to every child that resides within district boundaries.
Senator Rieger asked if the department would approve a
funding community for two schools of five students each.
Mr. Guiley said that the schools would receive less funding
if they combine rather than seek separate approval. The
department looks at the following in determining funding
communities:
1. Geographic boundaries
2. Students to be served
3. Proximity to other schools
4. Whether or not they are connected by road to other
existing funding communities
There is a traditional sense of an approximate 30-mile
radius around a high school comprised of the funding
community of all the elementary schools and secondary
schools (whether they be middle or junior high schools) that
feed into that high school.
Senator Salo voiced her understanding that Anchorage is one
funding community. Mr. Guiley explained that under current
statutes the Anchorage School District consists of three
funding communities:
1. Anchorage
2. Eagle river
3. Girdwood
The Senator then asked if, under the current definition, the
Anchorage area could consist of more than three funding
communities. Mr. Guiley responded that existing statutes
and regulations provide the commissioner of education with
discretion in establishing additional funding communities.
If Anchorage were to apply, and the commissioner approved,
the answer is "Yes, they could be." Senator Salo then
voiced her understanding that that could be accomplished if
a high school and its feeder schools were considered as a
funding community. Mr. Guiley concurred.
Senator Zharoff asked what would happen to the buildings and
facilities for the 35 schools with enrollments less than the
minimum of 16 proposed in the subject bill. Mr. Guiley said
that most of the buildings are operated under use agreements
with the Dept. of Education. The agreement requires local
school districts to "keep the building in safekeeping for,
normally, one year." The local district would be required
to insure, maintain and heat the
facility for one year while the department determines
whether or not to surplus the facility. Present statutes
and regulations deal with surplusing procedures that involve
the Dept. of Administration and in some cases the Dept. of
Transportation and Public Facilities and Dept. of Natural
Resources. It is possible that after the initial year the
building would be surplused and used for other purposes.
If, at a later date, there were enough students to again
open a school, the state would be faced with the situation
of no longer having a school in which to serve the children.
Senator Zharoff noted the migrant nature of populations in
some rural areas and voiced concern that the proposed bill
has created trauma in rural areas. He stressed need for
schooling in a formal educational setting as opposed to
correspondence study.
Senator Zharoff also raised concern over the fact that the
state does not have a definition or policy "of what basic
education is." Basic education in one area may not be the
same in another. He noted specifically that many students
graduating from high school must have a foreign language to
get into a good college. A number of Alaskan schools do not
offer foreign language programs. He then asked whether
foreign language should be considered an element of basic
education.
Senator Phillips attested to problems with class size in
urban schools. The proposed bill represents an attempt to
lower the TPR. He said that while the legislation may not
be perfect, it is a start.
Discussion followed regarding enrollment at a logging camp
school in the Southeast Islands District. Senator Phillips
voiced his understanding that most, if not all, of the
students are "from out of state." Mr. Guiley said that the
foregoing statement would be correct "of many of the logging
camps on Prince of Wales and Southeast Island REAA school
district . . . ."
In response to comments by Senator Sharp regarding district
responsibility to maintain and insure school facilities for
one year after closure, Mr. Guiley said that the department
has no funding source to take over the building once it is
transferred back to the state. Under current statutes, the
state owns the facility. The cost of maintaining and
insuring it would be added to the department budget. In the
course of further discussion, Mr. Guiley advised of the
existing hold harmless statute. In case of declining
enrollment or decrease in the number of K-12 units, a
district receives 75% of the revenue it would have received
in the prior year. When a funding community is deleted from
a school district, that normally puts the district in the
situation of receiving hold harmless funds. Those funds
allow for transition from an active school to closure.
Senator Sharp voiced his understanding that the district
could receive up to 75% for zero students once a school is
closed. Mr. Guiley responded affirmatively. He further
advised that the hold harmless statute provides 75% the
first year, 50% the second year, 25% in year three, and zero
for the fourth year. Closure thus involves phase out over a
four-year period.
Senator Rieger inquired concerning the rate at which
instructional units are accumulated. Mr. Guiley explained
that the table of values for a combined K-12 program allows
two units for the first ten students. When enrollment moves
above ten, the funding community receives 1/5 of a unit for
each child above ten in the size range from 11 to 20. When
enrollment moves beyond 20 to 21, each incremental child
generates 1/8 of a unit for funding communities ranging from
21 to 60. As enrollment moves above 60, additional students
generate 1/12 of a unit. Above 120 students, each
additional child generates 1/15 of a unit. In each case,
the minimal level of funding carries forward. Every funding
community has the benefit of those first two units, if it is
funded under the K-12 formula. Senator Rieger voiced his
understanding that a funding community would receive two
units at enrollment of 10, three units at 15, four at 20,
and five at 28. Mr. Guiley concurred, adding that a funding
community would receive nine units at 60. Those nine units
carry forward to 121 when fourteen units would be received.
Senator Rieger asked what would happen should the floor
increase to sixteen. Mr. Guiley said that the bill does not
change the table of instructional values. There would
simply be no funding communities in the range of 1 to 10 or
11 through 15. When enrollment reaches 16, the funding
community would receive two units and 1/5 of each unit for
each child beyond 10.
Co-chairman Frank asked if the hold harmless statute speaks
to funding communities or decreases in district enrollment.
Mr. Guiley said that it speaks to district decreases in K-12
units. As the number of K-12 units decreases by more than
10%, a district becomes eligible for hold harmless. The Co-
chairman suggested that a district "would have to have no
more than 20 units total . . . to achieve some money under
the hold harmless . . . ." Mr. Guiley concurred. He
explained that Sec. 5 of SB 70 reduces the current hold
harmless requirement from 10% to 5%. The department has
provided an analysis of which districts would fall under the
new 5% threshold. As an example, Bristol Bay School
District would lose a funding community under Sec. 4. The
district would "get some hold harmless money under Sec. 5 by
being decreased to the 5%." The district would lose $134.0
but would make back $78.0 on hold harmless. That would be
phased out over a four-year period. Co-chairman Frank
reiterated that hold harmless applies to district-wide units
rather than funding communities. Mr. Guiley concurred.
Senator Sharp voiced his understanding that if closure of a
school of eight or ten students within a larger district did
not amount to 5% reduction in enrollment, the district would
not be held harmless from the expense of maintaining the
structure. Mr. Guiley responded affirmatively. Under the
current statute, the district would have to sustain a loss
of more than 10% of its K-12 units. Under SB 70, the loss
would only have to be 5%, and the loss would be applied
district wide. In a district with generally increasing
average daily membership, the loss of units associated with
closure of a funding community would not generate hold
harmless revenue. The district would have to cover expenses
of maintaining and insuring the closed facility, for a year,
out of the district operating budget.
Senator Salo raised a question regarding circumstances at
Ketchikan. Mr. Guiley explained that past discussion of
hold harmless related to situations where there has been a
substantial decline in enrollment, and the district needs
time to phase out program offerings so that remaining
students are not immediately impacted. That is the general
purpose of hold harmless. It does not generally anticipate
closure of physical school buildings.
Referencing Sec. 2 of the bill, Senator Salo noted the broad
change associated with instituting the school price index as
a replacement for the area cost differential. She then
noted that a school price index study was conducted some
years ago, and she asked if the study remains valid. Mr.
Guiley advised that work on the school price index "fell out
of the work that was originally done on Alaska 2000
activities which began in November of '91." The committee
began work in April of 1992 and worked on the price index
for two years. The work was never completed nor endorsed
universally because the end result suggested that some
districts might lose money while others would gain. An
attempt to reduce the study to legislation produced much
opposition. At the present time, the department does not
have a school price index available and ready. The proposed
legislation provides a one-year period to develop the index.
Remaining portions of the bill would be implemented the year
before.
In response to a question from Senator Phillips, Mr. Guiley
said that the last update to the area cost differential (the
current area cost differential that exists in statute) was
done in 1988 by the McDowell Group. Prior to that, it was
accomplished in 1983 and '84. Senator Phillips asked if the
McDowell study was done in 1988 but effective in 1989. Mr.
Guiley said that the McDowell update was never adopted by
the legislature. The department continues to work from
1983-84 data.
Co-chairman Frank called for additional questions on the
legislation. None were forthcoming. He then directed that
SB 70 be HELD in committee for further consideration.
ADJOURNMENT
The meeting was adjourned at approximately 11:00 a.m.
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