Legislature(2013 - 2014)CAPITOL 106

02/04/2013 08:00 AM House EDUCATION


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08:01:55 AM Start
08:02:49 AM HB27
09:52:16 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 27 STUDENT COUNT ESTIMATES TELECONFERENCED
Heard & Held
                 HB 27-STUDENT COUNT ESTIMATES                                                                              
                                                                                                                                
8:02:49 AM                                                                                                                    
                                                                                                                                
CHAIR GATTIS announced  that the only order of  business would be                                                               
HOUSE BILL NO. 27 "An  Act relating to student counts, unreserved                                                               
school operating  fund balances, restrictions on  school district                                                               
money,  and estimates  for public  school funding;  and providing                                                               
for an effective date."                                                                                                         
                                                                                                                                
8:03:04 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ERIC  FEIGE, Alaska  State Legislature,  said that                                                               
the genesis of  the proposed bill was based on  both his personal                                                               
experience  and reported  observations of  school superintendents                                                               
in his  district.   He explained that  the bill  addresses school                                                               
budgeting using  student counts taken  during the year  for which                                                               
the  funding  is  applied,  even though  the  planning  for  this                                                               
funding  began  10-11 months  prior  to  the  actual count.    He                                                               
pointed out that this format  requires that school administrators                                                               
plan for a variety of possibilities.                                                                                            
                                                                                                                                
8:05:13 AM                                                                                                                    
                                                                                                                                
MICHAEL PASCHALL, Staff, Representative  Eric Feige, Alaska State                                                               
Legislature, said  that funding is  often cited as a  major issue                                                               
for education, and indicated that  the bill provides better means                                                               
for  school districts  to budget  money which  they receive.   He                                                               
noted  that  the  committee  has heard  from  the  Department  of                                                               
Education  and Early  Development  (EED) with  a presentation  on                                                               
average daily  membership (ADM) and  the formula  calculation for                                                               
the base student allocation (BSA).                                                                                              
                                                                                                                                
8:06:08 AM                                                                                                                    
                                                                                                                                
MR.  PASCHALL, referred  to the  "Public  School Funding  Program                                                               
Overview" handout  [included in  members' packets],  and directed                                                               
attention  to page  8,  to  point out  that  the current  process                                                               
utilizes an  estimated foundation number.   He explained  that HB
27 would change  this method from estimations  to actual numbers.                                                               
Identifying  slide  2,  "Application  of  ADM  to  BSA,"  of  the                                                               
PowerPoint  entitled   "HB  27   Application  of   Average  Daily                                                               
Membership  to Base  Student Allocation,"  he explained  that the                                                               
school  district budgeting  process estimated  student enrollment                                                               
in January, conducted a student  count in October, and received a                                                               
count  confirmation the  following January.   He  noted that  the                                                               
school district  received funding  from July through  March based                                                               
on the  estimated funding, and  then received funding  from April                                                               
through June  based on  any adjustment  to the  confirmed student                                                               
count.   He established that  the proposed bill would  switch the                                                               
budget period  and the  confirmation period,  so that  the fiscal                                                               
year  expenditures  would begin  with  a  calculated hard  number                                                               
instead  of  an estimate.    He  referred  to the  hold  harmless                                                               
provision included  in the proposed  bill, which would  allow for                                                               
supplemental  funding to  the school  district  in April  through                                                               
June  for any  large  increase in  enrollment  which resulted  in                                                               
additional costs earlier in the school year.                                                                                    
                                                                                                                                
8:09:13 AM                                                                                                                    
                                                                                                                                
MR.  PASCHALL   moved  on   to  slide   3,  "Variations   in  ADM                                                               
Projections," and  offered examples  of student counts  that were                                                               
too  high  and   too  low,  and  highlighted   the  variation  in                                                               
percentages  from student  count  fluctuations  for small  school                                                               
districts and large school districts.                                                                                           
                                                                                                                                
8:10:36 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P. WILSON asked for clarification.                                                                               
                                                                                                                                
MR.  PASCHALL  explained  that,  as   funding  was  based  on  an                                                               
estimate, the payment  distributions could be either  too high or                                                               
too low  depending on the  actual numbers.  Although  the payment                                                               
would be  adjusted in  the last  quarter of  the fiscal  year, it                                                               
would not be known until almost mid-way through the fiscal year.                                                                
                                                                                                                                
8:11:42 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX  asked about  any recourse if  the estimate                                                               
was too high.                                                                                                                   
                                                                                                                                
MR.  PASCHALL replied  that funding  within the  existing formula                                                               
provided  12  equal payments  based  on  the projection,  so  the                                                               
actual  payment in  the final  quarter  was adjusted  up or  down                                                               
based on the payments in the previous three quarters.                                                                           
                                                                                                                                
8:12:20 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  asked  for  more  information  about  the                                                               
funding examples on slide 3.                                                                                                    
                                                                                                                                
MR.  PASCHALL explained  that these  examples were  for district-                                                               
wide numbers, not individual schools.                                                                                           
                                                                                                                                
8:13:18 AM                                                                                                                    
                                                                                                                                
CHAIR  GATTIS  offered  her  belief  that  the  impact  from  the                                                               
estimates was easier  for larger school districts  to absorb, and                                                               
would have a much greater effect on smaller school districts.                                                                   
                                                                                                                                
MR. PASCHALL  opined that even  the large districts  would report                                                               
that  a   small  percentage  for   student  differential   had  a                                                               
significant financial impact.                                                                                                   
                                                                                                                                
REPRESENTATIVE SEATON reflected that a  small school had a school                                                               
size  multiplier,  and it  would  be  necessary to  consider  the                                                               
entire formula  and its effect on  the funding.  He  asked if the                                                               
previous school  year hard number  was any more accurate  than an                                                               
estimate which  would include projected transfers  and pre-school                                                               
additions.                                                                                                                      
                                                                                                                                
8:15:40 AM                                                                                                                    
                                                                                                                                
MR.  PASCHALL  agreed that  the  school  district would  use  the                                                               
actual  numbers to  budget for  the  up-coming school  year.   He                                                               
pointed  out  that  the  adjustment  would  be  received  in  the                                                               
following year over a twelve month period.                                                                                      
                                                                                                                                
REPRESENTATIVE  SEATON  asked  to  clarify  that  the  additional                                                               
funding would not be received until the following year.                                                                         
                                                                                                                                
MR.  PASCHALL explained  that  the money  would  be received  the                                                               
following  year,  although  it  would be  based  on  that  year's                                                               
current enrollment.  He noted  that the "hold harmless" provision                                                               
could be  invoked if there  was a  drastic change to  the student                                                               
numbers.                                                                                                                        
                                                                                                                                
8:17:09 AM                                                                                                                    
                                                                                                                                
MR.  PASCHALL  introduced  slide   4,  "Statewide  Average  Daily                                                               
Membership  Fiscal Year  1988-2011," and  noted that  the average                                                               
had been  relatively flat for  the past decade.   He moved  on to                                                               
slide  5, "Statewide  ADM  FY 2002-2011,"  and  pointed out  that                                                               
there  had  been a  statewide  2.7  percent decrease  in  student                                                               
population.    Indicating  slide  6,  "The  Biggest  Losses,"  he                                                               
reported that the portrayed districts  had the largest enrollment                                                               
drops.   He noted  that slide 7,  "The Biggest  Gains," reflected                                                               
the  modest gains  for some  districts, with  the exception  of a                                                               
continual gain by the Matanuska-Susitna Borough School District.                                                                
                                                                                                                                
8:19:04 AM                                                                                                                    
                                                                                                                                
MR. PASCHALL  explained that budgeting with  actual numbers still                                                               
required  adjustment  for  unanticipated  changes  and  that  the                                                               
reserve  funds  were used  to  pay  for  these adjustments.    He                                                               
reported that  historically school districts had  been allowed to                                                               
retain 10 percent  of their operating fund in  a reserve account.                                                               
In 2011,  the Government Financial Officers  Association issued a                                                               
new  best practice,  which suggested  a  reserve account  balance                                                               
equal  to  two  months  of   operating  expenditure,  about  16.6                                                               
percent.  He  stated that proposed HB 27  recommended an increase                                                               
of the reserve  account balance to 15 percent, in  order to allow                                                               
the   school  board   more   autonomy   for  capital   purchases,                                                               
significant repairs, or changes in operating environment.                                                                       
                                                                                                                                
8:20:54 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX  asked for the  rationale to any  limit for                                                               
the reserve account balance.                                                                                                    
                                                                                                                                
MR.  PASCHALL speculated  that, as  the legislature  would prefer                                                               
not  to fund  a school  district with  money that  was not  being                                                               
spent, there was a limit placed on the reserve account.                                                                         
                                                                                                                                
8:21:58 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON referred  to  the proposed  bill, page  9,                                                               
line 9, and read:                                                                                                               
                                                                                                                                
     A  district many  not accumulate  in a  fiscal year  an                                                                    
     unreserved portion of its year-end  fund balance in its                                                                    
     school  operating fund...  greater than  15 percent  of                                                                    
     its expenditures for that fiscal year.                                                                                     
                                                                                                                                
He  observed that  this referred  to an  unreserved portion,  and                                                               
asked if  there was also  a reserved,  or any other,  portion for                                                               
accumulated funds.                                                                                                              
                                                                                                                                
MR. PASCHALL  deferred to the  Department of Education  and Early                                                               
Development  (EED) for  a more  detailed  response about  reserve                                                               
accounts.                                                                                                                       
                                                                                                                                
8:23:12 AM                                                                                                                    
                                                                                                                                
MR.  PASCHALL directed  attention to  slide 9,  "Returned Funds,"                                                               
and  explained that  these  two  municipalities, Fairbanks  North                                                               
Star Borough  and Matanuska-Susitna Borough School  District, had                                                               
chosen to allocate funding to the  schools and, at year's end, to                                                               
recoup  any unspent  funds.   He  explained that  this money  was                                                               
removed  from  the reserve  fund  and  re-allocated into  capital                                                               
accounts.   He pointed  out that  the school  operating expenses,                                                               
and the  reserve fund, were  funded by both the  municipality and                                                               
the State  of Alaska.   He acknowledged that it  was questionable                                                               
whether the  money reclaimed  by the  municipality was,  in fact,                                                               
its money or the state's money.                                                                                                 
                                                                                                                                
8:24:22 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX, assessing that  most entities spent all of                                                               
the allocated funding,  asked if this was not the  same for these                                                               
school districts.                                                                                                               
                                                                                                                                
MR.  PASCHALL offered  his belief  that a  school district  began                                                               
operation  using  financial  information  which  assumed  certain                                                               
funding,  but this  did not  become actual  financial information                                                               
until January, which could then impact funding.                                                                                 
                                                                                                                                
8:25:30 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P.  WILSON  asked  if  the  school  district  was                                                               
allowed to retain 10 percent.                                                                                                   
                                                                                                                                
MR.  PASCHALL directed  attention to  slide 9,  which illustrated                                                               
that  the Matanuska-Susitna  Borough took  $1.3 million  from the                                                               
Matanuska-Susitna Borough School District  at year's end, leaving                                                               
a reserve balance of 0.6 percent.                                                                                               
                                                                                                                                
8:26:19 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  DRUMMOND  reflected  that  the  Anchorage  School                                                               
District was  required to maintain  a joint fund balance  of 8.25                                                               
percent  with the  Municipality  of Anchorage  which preserved  a                                                               
joint bond rating.                                                                                                              
                                                                                                                                
MR.  PASCHALL replied  that  not all  the  boroughs withdrew  the                                                               
school district reserve funds.   He specified that his office had                                                               
not received any objections from  any school districts pertaining                                                               
to the  provisions in  the proposed  bill.   He allowed  that, as                                                               
this was  a significant issue  for both the Fairbanks  North Star                                                               
Borough  and the  Matanuska-Susitna  Borough, the  aforementioned                                                               
provision was added to the proposed bill.                                                                                       
                                                                                                                                
8:27:43 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P.  WILSON asked  to clarify  how a  statute could                                                               
allow  a  school  district  to retain  10  percent  of  operating                                                               
expenses  in a  reserve  account,  yet the  borough  was able  to                                                               
remove that funding.                                                                                                            
                                                                                                                                
MR. PASCHALL opined  that a school district was  allowed, but not                                                               
required,  to  keep  the  money.    He  suggested  that  a  legal                                                               
interpretation was necessary.                                                                                                   
                                                                                                                                
8:28:39 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  LEDOUX asked  why  the school  districts did  not                                                               
spend  this  reserve money  on  necessary  items, as  opposed  to                                                               
returning the money to the borough.                                                                                             
                                                                                                                                
MR.  PASCHALL deferred  to the  Matanuska-Susitna Borough  School                                                               
District.                                                                                                                       
                                                                                                                                
8:29:48 AM                                                                                                                    
                                                                                                                                
LUKE  FULP,  Chief  Business  Official,  Business  &  Operations,                                                               
Matanuska-Susitna Borough School District,  explained that it was                                                               
not sound fiscal policy to spend  in order to alleviate any year-                                                               
end  funding reserves.   He  pointed  out that  having only  $268                                                               
thousand  to return  to the  Borough from  an original  operating                                                               
budget  of  $220  million   reflected  very  strategic  financial                                                               
planning.  He stated that  the fund balance provision in proposed                                                               
HB 27 would "definitely help us  in allowing us to hold a reserve                                                               
that really is commensurate with  the size of budget we're trying                                                               
to operate."   He communicated that although it would  not be two                                                               
months  of operating  expenses, it  would allow  a smooth  annual                                                               
expenditure transition for funding shortfalls.                                                                                  
                                                                                                                                
REPRESENTATIVE LEDOUX asked if proposed  HB 27 would prohibit the                                                               
boroughs from taking the excess funds.                                                                                          
                                                                                                                                
MR. PASCHALL expressed his agreement.                                                                                           
                                                                                                                                
8:31:39 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  asked  if  there  was  concern  that  the                                                               
borough  would  not  fund  to   the  school  district  an  amount                                                               
equivalent to the reserve fund.                                                                                                 
                                                                                                                                
MR.  FULP  replied  that  this  would  be  a  transparent  public                                                               
process,  as  the  borough  could  analyze  the  school  district                                                               
resources,  and  determine  the appropriation  for  the  upcoming                                                               
fiscal year.   He stated that this approach was  supported by the                                                               
school district  as the public  would then know exactly  how much                                                               
education funding  was given by  the municipality.   Referring to                                                               
an earlier  question regarding  the legality  for the  removal of                                                               
reserve  funds  by  the  borough, he  noted  that  any  remaining                                                               
reserve funds above the minimum  required could be removed by the                                                               
borough.                                                                                                                        
                                                                                                                                
8:34:16 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX  asked if  there was anticipation  for more                                                               
money from the municipality if this provision was passed.                                                                       
                                                                                                                                
MR. FULP replied  that he could not predict the  amount of money,                                                               
but the  proposed provision  would allow  for a  more transparent                                                               
public  process with  the determination  by  the municipality  of                                                               
school funding appropriations.                                                                                                  
                                                                                                                                
8:35:06 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P. WILSON  asked  to clarify  that  if a  borough                                                               
allocated more funding than was  required at the beginning of the                                                               
year, it could  appropriate the excess funding at the  end of the                                                               
year.                                                                                                                           
                                                                                                                                
MR. FULP expressed his agreement.                                                                                               
                                                                                                                                
REPRESENTATIVE  P.  WILSON  asked   if  the  proposed  5  percent                                                               
increase would make a difference,  or should the proposed bill be                                                               
amended to only  allow the appropriation of any  reserve above 15                                                               
percent.                                                                                                                        
                                                                                                                                
MR.  FULP opined  that the  intent of  the proposed  bill was  to                                                               
eliminate  any possibility  for the  borough to  place additional                                                               
restrictions on fund balances.                                                                                                  
                                                                                                                                
MR. PASCHALL  added that  Section 4 of  the proposed  bill stated                                                               
that  a borough  may not  take  back funds  that were  originally                                                               
appropriated for the school district.                                                                                           
                                                                                                                                
8:37:05 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  asked  to  clarify whether  there  was  a                                                               
greater risk  for not enough  funding during the current  year if                                                               
the borough  was calculating the  fund balance, as  the increased                                                               
student  count  would  allow  for   more  state  funding  in  the                                                               
following year.   He asked  if the borough could  potentially not                                                               
appropriate enough money.                                                                                                       
                                                                                                                                
MR.  FULP,  in response  to  Representative  Seaton, offered  his                                                               
belief that  this mechanism for  school district  budgeting still                                                               
had many unknowns.  He  shared that the Matanuska-Susitna Borough                                                               
School District had been working  with the borough on a long-term                                                               
funding plan.   He noted  that the Matanuska-Susitna  Borough was                                                               
split  on  opinion for  the  borough  to appropriate  the  excess                                                               
funding at the end of the  budget period.  He reported that House                                                               
Bill  273, enacted  in 2008,  had approved  a multi-year  funding                                                               
plan with  an increase in  the foundation formula,  which allowed                                                               
the  school district  to know  the state  funding three  years in                                                               
advance.   He  declared  that  this alleviated  a  great deal  of                                                               
financial uncertainty  each year.   However, the current  year to                                                               
year funding  methodology for school districts  required that the                                                               
districts maintain  the fund balances.   He declared  support for                                                               
proposed HB  27, as  it allowed the  school district  to maintain                                                               
its fund  balance which helped  smooth over  unforeseen operating                                                               
cost shortfalls from  year to year.  He pointed  out that, as the                                                               
Matanuska-Susitna  Borough  School  District  student  count  was                                                               
increasing, with  prior year student  count funding  the district                                                               
would  need to  maintain the  fund balance  in order  to pay  for                                                               
expense increases until the funding was brought up to date.                                                                     
                                                                                                                                
8:41:53 AM                                                                                                                    
                                                                                                                                
MR. PASCHALL presented  a sectional analysis for  proposed HB 27.                                                               
He  noted  that  Sections  1-3  were  only  necessary  conforming                                                               
language pertaining to previously  made capital expenditures.  He                                                               
said  that Section  4 prohibited  the municipality  from [taking]                                                               
money  from   the  schools,  and  created   transparency  in  the                                                               
budgeting process,  so that the  community at large  would better                                                               
understand how  much money had  been budgeted.  He  declared that                                                               
Section 5 was additional conforming  language.  He explained that                                                               
Section  6 contained  the hold  harmless provision  to provide  a                                                               
school district  with additional funding  if there was  any sharp                                                               
increase  in  enrollment.   He  indicated  that the  fiscal  note                                                               
attached to the proposed bill  had been prepared by Department of                                                               
Education and Early Development  (EED), although it was difficult                                                               
to predict student counts.                                                                                                      
                                                                                                                                
8:44:34 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER  directed attention  to page 8,  lines 21-                                                               
31, and  he asked to clarify  the conditions in which  a district                                                               
would not qualify for supplemental funding.                                                                                     
                                                                                                                                
MR.  PASCHALL  explained  that  this  section  allowed  a  school                                                               
district having a significant enrollment  increase, which did not                                                               
qualify  for  supplemental  funding  based on  the  formula,  the                                                               
opportunity to  request additional supplemental funding  from the                                                               
legislature  to handle  the unforeseen  financial hardships  that                                                               
could occur.  He offered an  example for an increase in intensive                                                               
needs students, as  the cost of education for  these students was                                                               
13 times greater.                                                                                                               
                                                                                                                                
REPRESENTATIVE SADDLER asked for further explanation.                                                                           
                                                                                                                                
MR.  PASCHALL  offered  as  an  example  that  the  reserve  fund                                                               
balances of  school districts ranged  from almost nothing  to the                                                               
maximum allowed,  and therefore  some school districts  would not                                                               
have the money to meet the necessary expenses.                                                                                  
                                                                                                                                
REPRESENTATIVE SADDLER confirmed his understanding.                                                                             
                                                                                                                                
8:48:25 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX asked  to clarify what would  happen in the                                                               
subsequent year,  if additional funds were  made available during                                                               
the current year under the hold harmless clause.                                                                                
                                                                                                                                
MR.  PASCHALL   explained  that  the  fiscal   note  covered  the                                                               
supplemental funding to the school district.                                                                                    
                                                                                                                                
REPRESENTATIVE  LEDOUX  asked  for more  clarification  regarding                                                               
subsequent funding.                                                                                                             
                                                                                                                                
MR. PASCHALL  replied that  additional expenditures  could result                                                               
from increases in student population.                                                                                           
                                                                                                                                
MR.  FULP  explained  that  the  aforementioned  provision  would                                                               
impact growing  school districts.   He noted that for  any school                                                               
system there  was scalability and  it was  occasionally necessary                                                               
to  have  additional  revenue  to  supplement  actual  needs  for                                                               
drastic changes.                                                                                                                
                                                                                                                                
8:50:44 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON, directing attention to  page 8, line 28 of                                                               
the proposed bill,  noted that the language was  "for an increase                                                               
in enrollment"  and asked if this  would go into effect  if there                                                               
were more special needs students,  but no increase in enrollment.                                                               
He asked if  there could be application  for supplemental funding                                                               
if a school district was unable to fulfill its needs.                                                                           
                                                                                                                                
MR.  PASCHALL expressed  his agreement  with the  assessment, and                                                               
explained  that this  section was  an  effort to  cover the  many                                                               
contingencies  that  may  arise  and allow  the  legislature  the                                                               
ability to address unforeseeable events.                                                                                        
                                                                                                                                
REPRESENTATIVE SEATON  asked to  clarify that every  small school                                                               
district  would qualify  for  increased funding  if  there was  a                                                               
student count increase.                                                                                                         
                                                                                                                                
MR. PASCHALL concurred.                                                                                                         
                                                                                                                                
8:54:53 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER returned  attention to  page 8,  line 30,                                                               
and asked if  the language "may request" should  be replaced with                                                               
"shall request."                                                                                                                
                                                                                                                                
MR. PASCHALL  indicated that  EED had  been consulted  during the                                                               
drafting of the  proposed bill.  He offered his  belief that this                                                               
was  an analysis  by  EED  to determine  an  actual need,  before                                                               
including  it in  the budget.    He stated  that, otherwise,  the                                                               
legislature  would be  dictating to  the governor  what could  be                                                               
included  in  the  supplemental budget,  and  he  questioned  its                                                               
legality.                                                                                                                       
                                                                                                                                
8:57:00 AM                                                                                                                    
                                                                                                                                
MR. PASCHALL  returned attention  to Section  7 of  the sectional                                                               
analysis, and  stated that this  increased the reserve  fund from                                                               
10  to  15  percent.    He reflected  that  this  could  also  be                                                               
increased, if  requested.  He moved  on to Section 8  which would                                                               
apply  the January  student count  to the  following year  rather                                                               
than the existing  year, as currently applied.   He reported that                                                               
Section 9 moved language from  one portion of statute to another.                                                               
He  mentioned   that  Section  10   removed  the   student  count                                                               
estimates, and that Section 11 provided for an effective date.                                                                  
                                                                                                                                
8:58:29 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER, referring  to the page 9, line  18 of the                                                               
proposed  bill, asked  if the  state still  operated a  statewide                                                               
centralized correspondence study program.                                                                                       
                                                                                                                                
MR. PASCHALL  replied that  he did  not know  if the  program was                                                               
still in place.                                                                                                                 
                                                                                                                                
8:59:14 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  referred  to  page 9,  line  12,  of  the                                                               
proposed bill,  and asked for the  reason to continue use  of the                                                               
October student count.                                                                                                          
                                                                                                                                
MR.  PASCHALL explained  that  the only  existing  count was  the                                                               
October  count,  which  allowed  EED to  certify  the  number  by                                                               
January for its use in the spring budgeting by the school                                                                       
district.                                                                                                                       
                                                                                                                                
REPRESENTATIVE SEATON asked to clarify that the October count                                                                   
would be applied to the upcoming budget year.                                                                                   
                                                                                                                                
MR. PASCHALL agreed that the student count would apply to the                                                                   
upcoming year, so that the student count could be fixed in the                                                                  
budget and not require any adjustment.                                                                                          
                                                                                                                                
9:02:17 AM                                                                                                                    
                                                                                                                                
PETE LEWIS, Superintendent, Fairbanks North Star Borough School                                                                 
District, read from a prepared statement:                                                                                       
                                                                                                                                
     This piece of legislation  addresses multiple issues as                                                                    
     you've  heard   in  the   previous  testimony   and  in                                                                    
     presentation.  It addresses  student counts for funding                                                                    
     purposes  and this  will allow  school districts  to be                                                                    
     able  to plan  ahead  knowing  the approximate  funding                                                                    
     levels in the  event of enrollment changes.   That is a                                                                    
     positive for  us.   HB 27 also  increases the  limit of                                                                    
     the amount of unreserved  school operating fund balance                                                                    
     from 10 to 15 percent.   Since the Fairbanks North Star                                                                    
     Borough   has  a   more  restrictive   local  ordinance                                                                    
     regarding fund  balance, this  change would  not impact                                                                    
     our  district.    And lastly  the  bill  restricts  the                                                                    
     assembly's  ability to  re-appropriate  or require  the                                                                    
     return  of funds  from the  school district  unless the                                                                    
     district is  over the unrestricted fund  balance limit.                                                                    
     With the proposed  legislation, operating dollars would                                                                    
     remain with  the school district.   Currently,  a lapse                                                                    
     ordinance  exists in  our Borough.   The  ordinance has                                                                    
     required  that operating  fund dollars  be  moved to  a                                                                    
     borough  school  facilities  maintenance fund,  and  to                                                                    
     date, that's over $4 million.   The annual lapse amount                                                                    
     has been  capped at $800,000 and  the lapse calculation                                                                    
     is really two pronged here  in Fairbanks.  The first is                                                                    
     a calculation that looks at  the operating revenue over                                                                    
     expenditures  regardless of  the  source  of timing  or                                                                    
     source of that revenue.   The second part looks at fund                                                                    
     balance.   Regardless  of  this  legislation, our  fund                                                                    
     balance   is  capped   at  7   percent  of   the  local                                                                    
     contribution amount, which in our  case is just over $3                                                                    
     million.   So, we are  nowhere close to  the government                                                                    
     financial  officers association  recommended amount  of                                                                    
     fund balance.   Our current fund balance  is just under                                                                    
     $100,000 and the  previous year it was at zero.   HB 27                                                                    
     would  keep  operating   dollars  with  classrooms  and                                                                    
     students  where  they belong.    It  makes the  process                                                                    
     transparent and  clear for everyone  involved.   As you                                                                    
     know,  costs are  high and  many  school districts  are                                                                    
     struggling to make  ends meet.  HB 27 is  a move in the                                                                    
     right direction, and we ask for your support.                                                                              
                                                                                                                                
9:04:52 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P.  WILSON asked whether this  proposed bill would                                                               
affect the borough funding to the school district.                                                                              
                                                                                                                                
MR.  LEWIS  replied  that  his  school  district  was  funded  to                                                               
approximately 75 percent of capacity  for local contribution.  He                                                               
explained  that the  borough could  choose to  fund a  facilities                                                               
maintenance  fund  up front,  and  this  would allow  the  school                                                               
district to "plan better in a better way."                                                                                      
                                                                                                                                
9:06:06 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON, directing  attention to page 9,  line 8 of                                                               
the proposed bill, asked if  local ordinances could supersede the                                                               
state  regulations   for  the  maximum  balance   in  the  school                                                               
operating fund.                                                                                                                 
                                                                                                                                
MR. LEWIS expressed his agreement.                                                                                              
                                                                                                                                
9:07:24 AM                                                                                                                    
                                                                                                                                
LARRY  DEVILBISS, Mayor,  Matanuska-Susitna Borough,  stated that                                                               
he had served  on the school board as well  as the city assembly.                                                               
He offered  his belief that it  was "bad policy to  take away the                                                               
power of the  body that's responsible for raising  the money; any                                                               
power that controls how that money  is spent, is bad policy."  He                                                               
explained  that  school  board  members  were  elected  with  the                                                               
responsibility "to spend the money  to the maximum benefit of the                                                               
education," but  the assembly  members were  "elected to  come up                                                               
with  raising  that  money,  it's why  you're  given  the  taxing                                                               
authority."  He  opined that those people elected  for taxing and                                                               
raising  the  money should  have  the  maximum control  over  the                                                               
money.  He pointed out that  in his district the fund balance was                                                               
negotiated, and he opined that  there had been success in meeting                                                               
the   needs  of   the  school   district.     He  expressed   his                                                               
understanding  of   the  school   district  need  for   funds  to                                                               
transition  between  budget  cycles.   He  said  that  a  forward                                                               
funding  formula  was  being  worked  on  to  enable  the  school                                                               
district "to do  business in a responsible way  across one fiscal                                                               
year to  the next, and  that's where  the fund balance  is always                                                               
helpful to them."   He noted that the current  agreement with the                                                               
school  district  was  for  a   50-50  split,  but  that  it  was                                                               
negotiable.                                                                                                                     
                                                                                                                                
9:10:27 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   SEATON  asked   whether  the   Matanuska-Susitna                                                               
Borough  had  a  restrictive   ordinance  similar  to  Fairbanks,                                                               
Alaska.                                                                                                                         
                                                                                                                                
MAYOR DEVILBISS  replied that he  did not  know who set  the cap,                                                               
but he did recognize the cap as a component of the borough code.                                                                
                                                                                                                                
9:11:36 AM                                                                                                                    
                                                                                                                                
ELIZABETH  NUDELMAN,  Director,  School  Finance  and  Facilities                                                               
Section,  Department of  Education and  Early Development  (EED),                                                               
said that she was available to answer questions.                                                                                
                                                                                                                                
9:11:49 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P. WILSON,  directing attention to page  5, line 8                                                               
of  the proposed  bill,  asked  if it  was  necessary to  include                                                               
"council members" as some areas did not have an "assembly."                                                                     
                                                                                                                                
MS. NUDELMAN replied that she did  not know, as that was specific                                                               
language outside EED.                                                                                                           
                                                                                                                                
9:12:58 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER, referring  to page 8, lines  21-31 of the                                                               
proposed  bill,  asked  if  there were  any  situation  where  an                                                               
increase  to  the student  population  of  a district  would  not                                                               
exceed  3  percent or  200  students,  yet  could still  cause  a                                                               
shortfall, necessitating a request for supplemental funding.                                                                    
                                                                                                                                
MS.  NUDELMAN replied  that EED  had not  previously worked  with                                                               
similar   language,  but   she  offered   her  belief   that  the                                                               
circumstance could be found.                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER  surmised  that an  increase  to  special                                                               
needs  students,   as  discussed  earlier,   would  automatically                                                               
increase  federal  funding to  the  school  district through  the                                                               
foundation formula.                                                                                                             
                                                                                                                                
MS. NUDELMAN  opined that the  language of the proposed  bill was                                                               
not clear as to how  intensive needs students would be addressed,                                                               
unless they coincided with an increase of enrollment.                                                                           
                                                                                                                                
REPRESENTATIVE SADDLER referred to page  8, line 30, and asked if                                                               
this  language  gave  EED  the  option  to  request  supplemental                                                               
funding, or should the language  reflect an obligation to request                                                               
supplemental funding in this situation.                                                                                         
                                                                                                                                
MS.  NUDELMAN  explained  that EED  worked  with  the  governor's                                                               
budget annually,  and she expressed  that she was unsure  for the                                                               
best avenue to  seek supplemental funding.  She said  that it may                                                               
not be in  the department's purview to  seek supplemental funding                                                               
when the language of the  proposed bill stated "may"; however, if                                                               
the proposed  bill language said  "shall", and this was  found to                                                               
be legally acceptable, then EED  would seek supplemental funding.                                                               
She suggested that the language needed clarity.                                                                                 
                                                                                                                                
9:16:32 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P.  WILSON mused  that  if  EED was  required  to                                                               
distribute  the  supplemental funding,  then  there  would be  "a                                                               
bunch of people applying because they  know they'll get it."  She                                                               
opined that, in this case, the  use of "may" would be correct, as                                                               
it would allow EED the option for awarding supplemental funding.                                                                
                                                                                                                                
9:18:07 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON pointed out  that the fiscal note indicated                                                               
that  11 districts,  or 20  percent of  all the  state districts,                                                               
would qualify  annually under  the hold  harmless provision.   He                                                               
asked how administration of this program would work.                                                                            
                                                                                                                                
REPRESENTATIVE  SEATON, in  response to  Ms. Nudelman,  clarified                                                               
that page  8, line 24  stated that "the department  shall provide                                                               
supplemental funding"  and yet  the fiscal  note did  not reflect                                                               
any cost for this procedure.                                                                                                    
                                                                                                                                
MS. NUDELMAN replied that the  fiscal note had been calculated by                                                               
comparing the preliminary 2013  adjusted average daily membership                                                               
(ADM) at the school size point to  the 2012 actual ADM.  She said                                                               
that  it was  not exactly  clear where  the supplemental  funding                                                               
would come  from, but she  suggested it  would be a  component of                                                               
the funding formula, and the  appropriation would be allocated as                                                               
there were funds.                                                                                                               
                                                                                                                                
REPRESENTATIVE SEATON  requested that  EED provide  a sequential,                                                               
graphic explanation  for how  this could  be implemented,  as EED                                                               
was required to  provide the supplemental funding.   He requested                                                               
that information  be provided  for the district  sizes of  the 11                                                               
school  districts  indicated  in  the   fiscal  note.    He  then                                                               
indicated page 9, line 8 of  the proposed bill and asked if there                                                               
were also reserved portions of  the school operating fund, and if                                                               
there was any interaction between reserved and unreserved funds.                                                                
                                                                                                                                
MS. NUDELMAN replied  that the law allowed for a  fund balance of                                                               
reserved  and  unreserved  components.     She  stated  that  the                                                               
reserved components  were identified in regulation,  and were for                                                               
encumbrances,  inventories,  pre-paid  expenses,  self-insurance,                                                               
and  the  piece  of  impact  aide which  districts  used  in  the                                                               
following  year.    She  said that  these  five  categories  were                                                               
separated out of the unreserved funds.                                                                                          
                                                                                                                                
REPRESENTATIVE SEATON  asked to  clarify that, as  the unreserved                                                               
portion was being  increased from 10 to 15 percent,  it seemed as                                                               
though  the school  district had  the ability  to move  the funds                                                               
between these  categories to create  a fund balance in  excess of                                                               
this 10 or 15 percent.                                                                                                          
                                                                                                                                
MS. NUDELMAN  agreed that the  cap on  the fund balance  was only                                                               
for the unreserved  component, so that any funds  in the reserved                                                               
component were not susceptible to the cap.                                                                                      
                                                                                                                                
REPRESENTATIVE SEATON  asked to  have EED  provide a  sampling of                                                               
reserved and  unreserved balances  from large, medium,  and small                                                               
school districts.                                                                                                               
                                                                                                                                
9:25:55 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   SADDLER  asked   if   there   was  currently   a                                                               
centralized correspondence program.                                                                                             
                                                                                                                                
MS.   NUDELMAN  replied   that  there   was  not   a  centralized                                                               
correspondence    program   throughout    the   state,    but   a                                                               
correspondence  program was  now administered  by the  individual                                                               
school districts.                                                                                                               
                                                                                                                                
REPRESENTATIVE SADDLER asked if the  reference on page 9, line 18                                                               
was still valid.                                                                                                                
                                                                                                                                
MS. NUDELMAN  replied that the  reference should be  reviewed for                                                               
relevance.                                                                                                                      
                                                                                                                                
9:27:12 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P.  WILSON  requested   that  EED  recommend  new                                                               
language regarding the correspondence programs.                                                                                 
                                                                                                                                
MS. NUDELMAN  suggested that only  the words  on page 9,  line 18                                                               
should be reconsidered.                                                                                                         
                                                                                                                                
9:28:16 AM                                                                                                                    
                                                                                                                                
MR. PASCHALL confirmed that the  proposed bill must interact with                                                               
all  existing  statutes  and  that  it  would  be  necessary  for                                                               
Legislative Legal  and Research  Services to write  amendments to                                                               
the  statute  pertaining  to  all  portions  of  the  centralized                                                               
correspondence program  that were no  longer in place.   He noted                                                               
that this could  require not only an amendment, but  a bill title                                                               
change, as well.                                                                                                                
                                                                                                                                
9:29:17 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER suggested  that the  revisor of  statutes                                                               
may need to consider this for future actions.                                                                                   
                                                                                                                                
9:29:50 AM                                                                                                                    
                                                                                                                                
CHAIR GATTIS opened public testimony.                                                                                           
                                                                                                                                
9:30:30 AM                                                                                                                    
                                                                                                                                
PEGGY   COWAN,  Superintendent,   North   Slope  Borough   School                                                               
District, said that  the school board did not have  a position on                                                               
proposed HB 27.   She explained that this bill  "does not fix the                                                               
budget gap," noting  that her district had cut  30 positions over                                                               
that  last   few  years  due   to  flat  funding   and  increased                                                               
expenditures.   She spoke in  support of the  provisions proposed                                                               
on page 4, line 28, Section  4, which allowed school districts to                                                               
maintain a fund balance.  She  pointed out that the hold harmless                                                               
provisions were  important, and  she provided  an example  of the                                                               
increased enrollment  from incoming  children attending  the pre-                                                               
school program which then required  an additional teacher for the                                                               
current year.                                                                                                                   
                                                                                                                                
9:34:30 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON, referring  to her  example for  increased                                                               
enrollment, asked if  the student estimate based  on the previous                                                               
year count was  better for funding than an October  count for the                                                               
current year.   He asked if there was a  balance between incoming                                                               
and graduating students.                                                                                                        
                                                                                                                                
MS. COWAN  explained that, since  1999, her district only  had an                                                               
increased enrollment  for three  years.  She  noted that,  as the                                                               
upcoming  year was  projected for  an increase  in students,  the                                                               
district would not receive as much  funding as a count during the                                                               
current  year.   She opined  that the  school district  would not                                                               
reach  the  3  percent  threshold  to  qualify  for  supplemental                                                               
funding.   She  expressed her  appreciation for  the "attempt  at                                                               
planning,  certainly  the  hold harmless  clauses  are  important                                                               
because  of  those very  reasons,  because  if  we do  have  more                                                               
students and  have to  spend more  money on  them, then  the hold                                                               
harmless clauses ...  are very significant for  districts such as                                                               
ours and others across the state."                                                                                              
                                                                                                                                
9:37:15 AM                                                                                                                    
                                                                                                                                
DUNCAN WARE,  Superintendent, Delta/Greely School  District, said                                                               
that  efficient planning  was important,  especially in  times of                                                               
austere budgets.  He declared his  support for proposed HB 27, as                                                               
it was  important for  school districts  to do  adequate planning                                                               
and be  able to plan their  funding.  He reported  that, although                                                               
his  school  district  had remained  static,  the  hold  harmless                                                               
provisions  were  greatly advantageous.    He  reported that  the                                                               
percentage increase for the reserve funds was beneficial.                                                                       
                                                                                                                                
9:39:00 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   SEATON  asked   to  clarify   that  the   school                                                               
district's federal funding was in  a reserved account, as opposed                                                               
to an unreserved account.                                                                                                       
                                                                                                                                
MR. WARE  replied that  the impact aide,  about $38,000,  and the                                                               
supplemental  funding  from  the  Department  of  Defense,  about                                                               
$53,000, had  been designated  by the school  board to  a reserve                                                               
fund for curricula materials to support the classroom teachers.                                                                 
                                                                                                                                
9:40:17 AM                                                                                                                    
                                                                                                                                
CARL  ROSE,  Executive  Director, Association  of  Alaska  School                                                               
Boards (AASB),  stated support by  AASB for  proposed HB 27.   He                                                               
said that  the issues were  complicated and there  were arguments                                                               
for both sides.  He expressed  his belief that dollars which were                                                               
appropriated for  education should be  protected and be  used for                                                               
education.   He agreed that  once funds from  municipalities were                                                               
co-mingled with state and federal  funds, it became unclear which                                                               
funding  remained.    He expressed  support  for  clarifying  the                                                               
percentage  of funding  to be  protected.   He  pointed out  that                                                               
planning,  especially  during  times  of  scarce  resources,  was                                                               
extremely important.  He noted  that enrollment, adjusted average                                                               
daily  membership (ADM),  and base  student  allocation were  all                                                               
necessary elements to dictate levels  of funding.  He stated that                                                               
proposed HB 27 would "be very helpful" for planning purposes.                                                                   
                                                                                                                                
9:42:17 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON,  directing attention to the  hold harmless                                                               
provision  of  200 students  or  3  percent, asked  whether  this                                                               
should be adjusted for school size factors.                                                                                     
                                                                                                                                
MR. ROSE  replied that  the adjusted ADM  was the  most important                                                               
number.   He offered his belief  that the diversity of  the state                                                               
ensured that any  decision would not work for  everyone, and this                                                               
would be true for this provision, as well.                                                                                      
                                                                                                                                
9:43:34 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER asked  if there  would be  any unintended                                                               
consequences,  including  large  amounts  of  additional  funding                                                               
being required.                                                                                                                 
                                                                                                                                
MR. ROSE,  in response  to Representative  Saddler, said  that he                                                               
was  never  able to  foresee  the  unintended consequences.    He                                                               
opined that  there was not going  to be any overage  for funding.                                                               
Referring to  the earlier discussions  for "shall"  versus "may",                                                               
he shared that  he preferred "shall" for an  important issue, and                                                               
"may" when the need for latitude is a component.                                                                                
                                                                                                                                
9:45:01 AM                                                                                                                    
                                                                                                                                
BILL  MCLEOD, Superintendent,  Dillingham  City School  District,                                                               
said  that proposed  HB 27  was a  good bill  for education.   He                                                               
shared  that  budget planning  was  difficult  in Alaska,  as  it                                                               
required  use  of the  October  enrollment  count, and  an  early                                                               
projection  of  revenue  and  expenses.   He  declared  that  the                                                               
enrollment count  was very  important, as it  was the  driver for                                                               
much  of the  funding.   Using  the known  enrollment count  from                                                               
October of the  current year for the next year's  budget would be                                                               
very helpful  to his  school district  as the  current enrollment                                                               
was  higher than  the  projected enrollment.    He reported  that                                                               
rural Alaska  had a shifting  population base and that  using the                                                               
known enrollment  for the projected  funding would  stabilize the                                                               
planning process.  He suggested  that the 3 percent threshold for                                                               
the  hold  harmless  provision  might need  to  be  adjusted  for                                                               
smaller,  rural  school  districts   to  allow  for  declines  or                                                               
increases.   He  discussed that  uses for  the reserved  fund was                                                               
mandated, but  the unreserved fund  was less restrictive,  and he                                                               
asked for  caution in making changes  to the reserved funds.   He                                                               
pointed to  the importance for  the inclusion of  intensive needs                                                               
students in  the regular enrollment  count as the  multiplier was                                                               
especially important to  a small school district.   He stated the                                                               
need for  assurance for this  funding, and that  local governance                                                               
could best decide the need and the allocation for expenditure.                                                                  
                                                                                                                                
9:51:06 AM                                                                                                                    
                                                                                                                                
CHAIR GATTIS closed public testimony.                                                                                           
                                                                                                                                
9:51:14 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DRUMMOND expressed  interest in receiving comments                                                               
specifically  from   the  Anchorage   School  District   and  the                                                               
Anchorage Assembly.                                                                                                             
                                                                                                                                
9:51:54 AM                                                                                                                    
                                                                                                                                
CHAIR GATTIS announced that HB 27 would be held over.                                                                           

Document Name Date/Time Subjects
HB 27 28-LS0171A Student Counts.pdf HEDC 2/4/2013 8:00:00 AM
HB 27
HB 27 DEED Funding_Program_Overview_2012.pdf HEDC 2/4/2013 8:00:00 AM
HB 27
HB 27 Fund Balances MSBSD.pdf HEDC 2/4/2013 8:00:00 AM
HB 27
HB 27 Presenation to House Education.pdf HEDC 2/4/2013 8:00:00 AM
HB 27
HB 27 SPONSOR STATEMENT Student Counts.pdf HEDC 2/4/2013 8:00:00 AM
HB 27
HB 27 28-LS0171A Sectional Analysis.pdf HEDC 2/4/2013 8:00:00 AM
HB 27