Legislature(1997 - 1998)
02/05/1998 03:30 PM House HES
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* first hearing in first committee of referral
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SSHB 148 - SCHOOL FUNDING ETC./ CHILD CARE GRANTS Number 0817 CHAIRMAN BUNDE announced the next bill to be heard was SSHB 148 "An Act relating to the public school funding program; relating to the definition of a school district, to the transportation of students, to school district layoff plans, to the special education service agency, to the child care grant program, and to compulsory attendance in public schools; and providing for an effective date." He noted that a representative from the McDowell Group who had recently released the area cost differential study was available to explain the results of the study. Additionally, Eddy Jeans, from the Department of Education was on hand to discuss the side-by-side analysis of the different legislative bills relating to this issue. Number 0892 EDDY JEANS, Manager, School Finance Section, Education Support Services, Department of Education, stated the side-by-side comparison prepared by the Department of Education does not include amendments to the various bills that would include the revisions based on the McDowell Study. The Department of Education is currently reviewing that study to determine the impacts. He pointed out the study does not have differentials that can simply be dropped in to replace the old area cost differentials, so it will require additional analysis on the part of the department. Number 0948 CHAIRMAN BUNDE noted that most, if not all, legislators had received a communication from various communities which recommended, in part, that an area cost differential study be prepared biennially. In light of the costs involved, he asked Mr. Jeans what his reaction was to that recommendation. MR. JEANS stated it is the opinion of the Department of Education that a database should be established in which the area cost differentials could be modified on a biennial or 3- to 5-year- basis. That was included in the Governor's bill before the legislature last year that the Department of Education could update those area cost differentials; in fact, recommended that it be placed in regulation. Number 1008 MR. JEANS pointed out the Governor has introduced new legislation this year that does not include this type of update to the area cost differential. In fact, it modifies the current information as sort of a housekeeping measure. Number 1032 CHAIRMAN BUNDE asked Mr. Jeans if he could speculate what the cost might be for a revision in the area cost differential every two years. MR. JEANS responded he couldn't say what the dollar amount would be, but hoped the department would get a database out of this so they could start to collect the information, input it into the database, and generate the results. He didn't anticipate it would be all that expensive, although the initial cost for the database probably would be. Number 1068 CHAIRMAN BUNDE recalled that one of the premises of the McDowell Study was that the "market basket" cost in a community really shouldn't be used as the basis for cost of education in that community. For example, the cost of a gallon of gasoline in Kivalina doesn't relate to educating a student there because the school district probably has very few, if any, vehicles. MR. JEANS commented that in general terms, the department would agree with that philosophy; it shouldn't be a market basket of goods, but should have some other indicators on providing the educational services. Number 1114 REPRESENTATIVE JOE GREEN asked Mr. Jeans what kind of time and cost would be associated with data gathering and/or computer people to make the information meaningful, if the department was to establish a database that would update information every couple of years. MR. JEANS emphasized his response would be hypothetical because he was not prepared to say the department could actually do this. He said the department already collects a lot of information on schools such as enrollments and financial information, so it would be a matter of determining what the data set was that would be used to determine the area cost differentials and the means to collect that information. The majority of the costs would be incurred in the initial set up; maintenance shouldn't be a big problem. CHAIRMAN BUNDE asked Mr. Jeans to explain the side-by-side analysis prepared by the department. Number 1184 MR. JEANS stated the side-by-side is a school funding analysis. The first column identifies the elements within each of the proposals. The headings of the next six columns are as follows: Current Foundation Formula; HB 294 introduced by Rep. Kubina; SB 36 introduced by Senator Phillips; SB 257/HB 351, Governor Knowles' new proposal; SB 146 adopted by the Senate HESS; and HB 148 adopted by the House HESS. MR. JEANS explained the first element is units versus per pupil allocation. The current foundation program uses an instructional unit method for distributing state aid. That would also be true for Representative Kubina's bill, Senator Phillips and Governor Knowles' new proposals. Senate Bill 146 and House Bill 148 would move the allocations to a student-based allocation. MR. JEANS continued the next column down is the full funding requirements. The current formula is fully funded in the Governor's FY 99 budget based on the current criteria of the foundation program. The unit value is currently set at $61,000 per instructional unit. House Bill 294 would require an additional $37.5 million over the FY 99 budget and would increase the instructional unit value to $64,000 for a $3,000 increase. Senate Bill 36 would require an additional $35.5 million to fully fund over the current FY 99 budget. This bill has a recapture provision which would require the North Slope Borough to send a payment to the state of Alaska of approximately $33 million. The unit value would remain at $61,000. Under SB 257/HB 351 an additional $24.1 million would be required over the FY 99 budget and the unit value would be increased to $62,550. CHAIRMAN BUNDE asked if that was an additional $24 million per year or a one time cost. MR. JEANS replied that each one of the increases referred to would be an annual cost. He continued that under the updated fiscal note for SB 146 an additional $4.1 million would be required over the FY 99 budget. He pointed out it was a per pupil allocation. Because of transition years, the per student allocation will vary for the first four years before it becomes stable, so the department did not address that on the side-by-side comparison. The full funding requirement wasn't addressed for HB 148 because the department wasn't sure what the committee substitutes would be. CHAIRMAN BUNDE recalled that it was about $400,000 - $500,000. MR. JEANS continued to explain the next column was the annual increases. There is no annual adjustment under the current foundation formula, HB 294, or SB 36. There's a 1 percent increase under SB 257/HB 351, which is about a $600 per year increase to the unit value for an annual cost of slightly over $8 million. Senate Bill 146 has a recommended inflationary adjustment based on the Anchorage Consumer Price Index. The term recommended is used because the legislation requires the department to report to the legislature, a recommended student value. There is no adjustment in HB 148. MR. JEANS explained the next element was categorical funding. Under the current foundation formula, categorical revenue is based on identification and types of service. There are four different levels in special education, three different levels in bilingual and one level for vocational education. There would be no program changes under HB 294. Under SB 36, categorical revenue would be generated for gifted and talented students and is an allocation based system whereby 4 1/2 percent of the student population is multiplied by a factor to arrive at the allocation. This legislation also consolidates the three different levels of bilingual into one level, which basically levels the playing field. Under SB 257/HB 351, a 4 percent allocation is recommended for gifted and talented students and a 14 percent allocation for resource/self contained. Number 1461 REPRESENTATIVE PORTER asked Mr. Jeans to explain the difference between resource/self contained and intensive service. MR. JEANS explained there are currently four categories in special education: gifted and talented, resource, self contained services, and intensive. Resource services are students who require remedial services outside the classroom. Self contained services are slightly beyond the resource service level where children are in a classroom with other children needing the same types of services. Intensive services are the severely multi-handicapped students who require a full time aide. He noted there are approximately 1200 students statewide who require the intensive level of service, at a cost of about $20,000 per student under the current foundation formula. MR. JEANS explained that under SB 146, special needs would be an allocation of 20 percent of the student population and would include special education, gifted and talented, bilingual and vocational education. It would abolish the categorical revenues as it is currently known, and make a 20 percent allocation. That same scenario is true for HB 148, also. Number 1535 MR. JEANS continued the intensive service funding is based on student count under the current foundation formula. The current level of funding is slightly over $20,000 and would remain at that level under all the proposed legislation, with the exception of SB 146 and HB 148 which would be $22,500. Number 1560 MR. JEANS explained the required local effort element in the current formula is based on the equivalent of a 4 mill property tax levy or 35 percent of the district's basic need from the previous year. CHAIRMAN BUNDE pointed out that Rural Education Attendance Areas (REAAs) were excluded. MR. JEANS continued that under HB 294, the local effort would remain at 4 mill local effort, but the 35 percent would be increased to 40 percent of basic need for those communities falling into that provision: Valdez, North Slope, Unalaska and Skagway. Number 1590 REPRESENTATIVE PORTER questioned why those four communities fall under the basic need provision while other communities fall into the minimum millage. MR. JEANS explained that under the current foundation program, the required local effort is the lesser of the equivalent of a 4 mill property tax or 35 percent of basic need. Mr. Jeans continued the required local effort under SB 36 would change to 4.5 mills; the equivalent of a 4.5 mill tax levy for all municipal school districts in the state. This legislation also contains a recapture provision which requires the North Slope to send $33 million to the state of Alaska. Number 1631 REPRESENTATIVE FRED DYSON asked Mr. Jeans to explain the uniqueness of the North Slope situation. MR. JEANS explained the North Slope assessed value is approximately the same as Anchorage and on a per student basis it is approximately $6 million property value per student. Basically, it indicates extreme wealth. CHAIRMAN BUNDE understood that per capita, it is the wealthiest local government in the United States. CHAIRMAN BUNDE announced he would like to discontinue the discussion of the side-by-side analysis at this time, and have Eric McDowell address the area cost differential study. He confirmed that Mr. Jeans would be available to continue his discussion at a later date. Number 1691 REPRESENTATIVE GREEN observed that according to the side-by-side comparison, Senate Bill 146 was the only legislation that affected the unorganized boroughs. He questioned how that could be ignored in the other bills. MR. JEANS replied that SB 146 places a 3 percent wage tax on the unorganized boroughs. None of the other proposals would impose some form of tax on the unorganized boroughs. Number 1720 CHAIRMAN BUNDE interjected that for House Bill 148 to be successful, it presupposes that other legislation in the process requiring unorganized areas to make a contribution would be passed. CHAIRMAN BUNDE asked Eric McDowell to come forward to discuss the area cost differential study. Number 1782 ERIC MCDOWELL, Senior Partner, McDowell Group, introduced David Teal, Senior Analyst for the McDowell Group, and designer and project manager. Mr. McDowell said he would be giving the committee an overview and would be available to answer questions. Mr. McDowell explained the nature of the assignment, which is quite limited in one sense, but quite vast in another; that being basic need or what is needed to provide equitable education across the state. There are two items relating to the cost of education they were asked to looked at: What is the effect of school size on cost and geographic location. He explained that a school of 50 students has less efficiencies than a school of 500 and climate and distance, et cetera, are factors in location. MR. MCDOWELL said he would address size first, and explained factual data was used for both staffing and cost, followed by statistical methods to manipulate that data. In one sense it was a huge assignment because they were dealing with enormous databases of all kinds; on another hand, it was good the scope was limited to size, location and to the basic needs. MR. MCDOWELL drew a graph for the committee which depicted students and staffing. He stated, "When I draw this curve, it will go from a school size of 0 students out here to about 1500 and what we did is we looked at the staffing of all 484 - depending on who's counting or how we're counting - individual schools and said how big are they, what were the staffing that was done regardless of whether your district might have been overcompensated or undercompensated or big or small. And so, what we did was we took the influence of your current allocation out of it to calculate the most crucial piece which is the size factor in cost of education." CHAIRMAN BUNDE clarified the largest school in the state has well over 2,000 students. Number 1971 MR. MCDOWELL said 1500 was a generalization. He continued his overview stating a team of individuals, having about 100 years cumulative school expertise, was assembled. The team included Andy Warwick from Fairbanks; Tom Freeman, former business manager of the Anchorage School District; Bob Weinstein, former rural Southeast school superintendent; and Jim Paul, retired rural school superintendent. This team of individuals was asked what they would need to staff a school to provide good education in the basics, regardless of budget. They mapped out a curve of what was needed for schools of all sizes. The team didn't necessarily agree with everything the McDowell Group was doing, and in fact, many changes were made. It was interesting that the curve derived by the team was very close to the statistical curve of the McDowell Group. He drew a curve on the flip chart and said, "In other words, the larger the school, the efficiency gets really good starting about say 500 to 600, and then your increasing benefits of efficiency get a lot less. You get out beyond 1500, and while you still get some more efficiencies, it's pretty insignificant beyond that." But the difference in efficiency between a school of 50 and a school of 150 is very significant. Number 2026 CHAIRMAN BUNDE said one of the concerns about Alaska schools is that of being top heavy in administration and asked if that was addressed anywhere in the study. He was interested in knowing if the curve illustrated "what is," "what ought to be," et cetera. MR. MCDOWELL replied the information is essentially, according to data from superintendents and data from McDowell Group, what ought to be in terms of instruction, not administration or nonpersonal costs. Number 2046 REPRESENTATIVE GREEN asked, "In this -- this is a wish list type thing, it's an artificial school, so as you get out 2 - 3,000 -- we don't have many like that but we do have some over 2,000 -- that you're not in a cramped, confined quarter or anything like that. It's still on a hypothetical basis." MR. MCDOWELL said, "Yeah, I would say hypothetical, but the basis of it is the combination and the average curve of all schools as they staff now - under the assumption that some are high, some are low in their funding - but that they'll come down the middle and that will be defined as adequate education. And that matches very closely with what the superintendents say. Most of their work is through the 500 and once you get out here because there's so few schools, the changes can be -- like if one particular school was overfunded or underfunded, then you could have some quirks out here at the end. But the statistical method, the regression analysis and so forth that we use, we think it's still pretty good way out here at the end with the big schools." Number 2084 REPRESENTATIVE GREEN said that he has heard from both educators and administrators, that when a school reaches over 1,500 students, the efficiency actually begins to drop. MR. MCDOWELL said he didn't know if it dropped, but it doesn't get much more efficient. He explained that when a school reaches 1,500 - 2,000 students, a constituency exists for everything; e.g., a Latin class, gymnastics program for third graders, et cetera. Essentially, the demands are much greater for a large constituency and unfortunately, it's one of the burdens that big schools have to bear. Number 2114 MR. MCDOWELL explained that one of the first conclusions reached was that under the old system there was one area cost differential. The suggestion from the McDowell Group is to allocate in three different areas - instructional, administration, and nonpersonal (NPS). Based on a variety of data, they determined the three costs behaved totally differently from one another, so one formula doesn't do it. He said, "Administration costs behaved like we told you - you got more efficient as you went up there and cost per student seemed pretty reasonable in most cases and so what we learned is, we suggested using size only for instruction because one of the major findings of the study is no matter what your differential was that you were funded by, the truth is that most districts paid about the same to their instructional personnel." Number 2158 CHAIRMAN BUNDE interjected that rural schools pay a premium for teachers who teach a relatively short period of time. Urban schools don't have to pay the initial premium, but have teachers who stay to hit the top end of the salary scale, which nets about the same. Number 2175 MR. MCDOWELL said that most districts pay about the same, and approximately 45 out of 53 districts pay within 5 percent of what Anchorage pays. Urban districts have made conscious choices in terms of how long they want teachers to stay, while rural districts start at a higher wage in order to attract teachers. The real cost differences are in the other two areas; administration and nonpersonal. With regard to size, the area cost differential for instruction is one for everyone. But districts with relatively small sized schools will get 1.4. MR. MCDOWELL next addressed the nonpersonal service areas. He said that statewide, and it varies greatly by district, about 79 percent of all operating costs are instructional; about 5 percent are administration. Building administrators were included in the instructional category. Administration was narrowly defined as just personnel in the central office that don't relate to students. CHAIRMAN BUNDE noted the committee may have a need to revisit HB 148 to define administrator. He had recently learned that administrators are being classified as teachers, because districts can see what the impact is going to be. MR. MCDOWELL agreed there was some shuffling from administration to instructional. He continued that nonpersonal which includes books, fuel, et cetera, is about 15 percent. The findings indicate that cost differential per student is far higher than imagined in nonpersonal service. He explained it as follows: "Let's say that in Nome it cost $2 a gallon for fuel and in Anchorage it cost $1 a gallon, so you think that your differential should be 2.0 for NPS. That's not the case and we're the ones who did the research nine years ago that told you what these things cost -- per pupil is what costs. And here in Nome, you've got a severe climate and an inefficient old building, you're burning four gallons of fuel to heat a kid each day. Anchorage burns one gallon of fuel to heat a kid each day. The cost difference per student is really $8 versus $1, so your differential can be as high as 8, not 1.3, for example. So, the shift is identifying where the costs really are." It's not personnel, it's very severe in NPS, and administration hits all over the map. The lowest administration costs were approximately $115 per district and the highest was in the thousands of dollars per student. REPRESENTATIVE GREEN inquired if the administration costs were determined by the size of the school, location or a combination. MR. MCDOWELL responded that it was a combination and stated, "When we give you a factor for administration NPS, we're talking about the cumulative effect of size and location in these categories. What we really have -- we didn't make judgments about whether you manage your district inefficiently and you were doing a great job in keeping it lean -- what we did observe is because of size, there are inefficient school districts to start with. So if you've got a district of 31 kids in Pelican and add a superintendent and a principal, you're a little top heavy." TAPE 98-4, SIDE B Number 0034 MR. MCDOWELL continued that because of fluctuations and not having real strong data in this area, they ended up recommending essentially three different differentials: Use size for instruction because that's where most of the money is spent; look at setting some limits for administration costs; and for nonpersonal services, the extreme at the top was lobed off and filled in at the bottom so the districts that were very lean didn't get penalized, but ended up with the average for Anchorage. Mr. McDowell said the real result of their work was to telescope so the districts with the highest differentials are probably a little lower, and the districts with the lowest differentials are a little higher. The order, however, is the same - the lowest paid districts are still the lowest paid and the highest paid districts are still the highest. Mr. McDowell believed that some equity had been achieved in doing it this way. Number 0049 CHAIRMAN BUNDE inquired what category would nonteaching staff, such as janitors, fall under. MR. MCDOWELL responded that if they are in a building and associated with supporting the students, they are included in the instructional category. Individuals performing a central function would fall into the administration category. MR. MCDOWELL said one of the key points is there are 53 districts, there were 271 funding communities, and 484 or 488 schools. The McDowell Group was asked to study the per school size factor. He stated, "You can't do that and use funding communities." An objective cost analysis of what it costs to operate a school of any particular size can't be done if there is a combination of schools in one funding community. The McDowell Group's analyses were done by school and it is their recommendation to let go of the funding community concept and go with the real cost center. He cited an example of a town with 600 students and three schools of 200 each, funding is needed for three schools of 200 each because that's where the inefficiencies are; staffing and principals are required for each one of those schools. However, if the next town has 600 students but only one school, the level of funding per student is less than each of the three schools. He stated, "When we do it by school, everyone is on an equitable basis when it comes to funding for school size and that's a big departure." Number 0108 CHAIRMAN BUNDE asked if that wasn't rewarding inefficiency because the economically efficient big school gets less money than the economically inefficient smaller school. MR. MCDOWELL pointed out the inefficient smaller school costs more, so it's self-defeating. He added, "I probably wouldn't want to manipulate that way because it's all going out the door because I've got higher costs in these little buildings. But it is conceivable that someone might want to manipulate that." On the other hand, if the cost center is by school and it's been measured, then why not fund by school. He said the McDowell Group was not giving the committee a new formula, cut and dried, but rather giving the pieces to assemble a formula that has political considerations. MR. MCDOWELL said in closing that one of the reasons this method was chosen is because there are existing databases that can continue to be improved, so this formula can get more and more accurate. Also, a transition period is being recommended so that no one loses dollar funding. He said the results of taking $800 million and distributing it through this formula indicate there's about $20 million that shifts from some districts to other districts. The suggestion is to take the $16 million to $20 million and do essentially a hold harmless. Number 0203 CHAIRMAN BUNDE asked if it would take an additional $20 million per year to fund the hold harmless or was it a one-time expenditure. MR. MCDOWELL said, "Per year, but as your pot grows a little, it will probably go away pretty quick in a few years." Number 0216 REPRESENTATIVE GREEN asked, "...is there some way that you would not be penalizing an efficient large school because if you do it by school and not consider the number of students in it, you are penalizing efficiency and is there a way that you could make a combination of student enrollment and number of schools as opposed to just saying we're going to go to a building rather than a number of kids inside?" MR. MCDOWELL responded that it was all based on the number of students. He explained, "How it works is I've got a school of 50 and a school of 100 and a school of 200, I get to start over with my efficiency curve each time, so I get, per kid, a funding allocation based on this school's efficiency. So, the large efficient school is not penalized; they're still getting an appropriate per kid allocation for however many kids there are." Number 0254 MR. MCDOWELL said, "So, in summary on the area cost differential, not the size part, is here was the personnel side or the instruction side and here was the nonpersonal side. You used to get a formula that was at this level - say 1.30 for one of the remote districts - so you got 30 percent more for all your people; 30 percent more for all your NPS. What we found is that personnel is actually 1.00 but when you got to the NPS, that could be as high as 8.00. Same with administration because like I say, there's inefficient districts that may or may not be efficiently administered, but just the fact that you only have 50 or 100 in a district, you gotta have somebody sitting in there being the boss. That's inefficient by itself, although he might have a low salary and cut his travel and all that. So when you look at the issue of say perhaps, consolidation and those kinds of things, you're probably looking at some significant administrative savings. So, what we're doing is we're just saying here's where your real costs are, how about allocating by real costs and I think you'll have a fairer system as a result." Number 0300 CHAIRMAN BUNDE asked if it was safe to assume there wouldn't be any huge change in funding for various schools. MR. MCDOWELL confirmed that. He considered that it would be moderate. He reiterated their study looked at districts from 21 students to 47,000 students and there wasn't any formula that would treat every district fairly. However, he thought by and large the costs were being allocated where the costs really are. CHAIRMAN BUNDE noted there were three people who wished to testify via teleconference. He thanked Mr. McDowell for his presentation and announced that Beth Deeter would be testifying via teleconference from Seward. Number 0371 BETH DEETER testified via teleconference from Seward stating the foundation formula had not increased in several years. She discussed the unfunded mandates being cut but were needed in the schools and said she would like to see some provision to increase funds for that. She found the area cost differential study interesting and liked the idea of allocation by real cost. She noted the original draft had Seward at the same cost as Anchorage, which in her opinion was ludicrist considering the increased cost of living in Seward. CHAIRMAN BUNDE noted that Ms. Deeter had expressed a desire to see more funding for the foundation formula and asked where the additional funds should come from. MS. DEETER suggested taxes and other things. CHAIRMAN BUNDE noted the results of a statewide study indicated that people would support a sales tax for education, if a tax was necessary. He thanked Ms. Deeter for her testimony and asked Ms. Sturgulewski to present her testimony. Number 0488 CAROL STURGULEWSKI testified via teleconference from Seward. She referred to Chairman Bunde's question and suggested either taking funds from the reserve account or not putting as much money into the reserve account this year. She encouraged the committee to adopt the area cost differential, as described. People on the Kenai Peninsula have known for years that the numbers were not correct as the cost of living is certainly higher there than in Anchorage. Considering these numbers have been used for approximately the past 10 years, she said the Kenai Borough School District should be funded about 1.156 instead of 1.0. Because the district hasn't been funded at that level, they've been taking money out of other areas to pay for actual costs. She urged the committee to approve the area cost differential and to consider an increase in funding. CHAIRMAN BUNDE observed that part of the goal in rewriting the foundation formula was to make it simpler and make it a more fair distribution. He thanked Ms. Sturgulewski for her testimony and asked Mr. Rohlman to present his testimony. Number 0618 RON ROHLMAN testified via teleconference from Sitka and echoed the comments of the previous speakers regarding a need for an increase in educational funding. He indicated he has no problem with paying taxes for education. He noted the area cost differential for Sitka is the same as Anchorage, meaning they get the same amount of money but Sitka pays phenomenal transport fees. With respect to cutting funds for education, he cited an example of a kindergarten site being cut which cost approximately $100,000 a year to maintain and served 113 children. Those 113 children were crammed into another building, which decreased the quality of education for the entire building proportionately. He reiterated his willingness to pay more taxes, but he suggested the legislature get more directed on their view of oil prices. Number 0752 CHAIRMAN BUNDE emphasized that education funding has not been reduced. He thanked Mr. Rohlman for his comments. Chairman Bunde announced that information from the cost differential study still needed to be incorporated into CSSSHB 148(HES) and individuals would have an opportunity to testify at a later meeting.
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