Legislature(1997 - 1998)
03/21/1998 01:07 PM House HES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CSSB 36(FIN)am - PUBLIC SCHOOL FUNDING Number 0137 CHAIRMAN BUNDE announced the committee would be addressing CSSB 36(FIN)am, "An Act relating to public schools; relating to the definition of a school district, to the transportation of students, to employment of chief school administrators, to school district layoff plans, to the special education service agency, and to the child care grant program; and providing for an effective date." He announced that Senators Phillips and Torgerson were present and Senator Wilken would participate via teleconference in giving the committee an overview of this legislation. REPRESENTATIVE IRENE NICHOLIA speaking via teleconference advised Chairman Bunde there were hundreds of people at the Tok Legislative Information Office in protest of this bill. CHAIRMAN BUNDE noted that Representative Jeannette James was in attendance. Number 0242 SENATOR RANDY PHILLIPS, Prime sponsor, verified that committee members had received the sponsor statement, sectional analysis, a comparison schedule of funding of the existing system plus $50 million as well as SB 36 plus $50 million and a short history of the McDowell Report. CHAIRMAN BUNDE drew attention to a stack several inches high of public correspondence that accompanied the legislation from the Senate. He advised the correspondence would be available in the committee room for members' perusal. Number 0359 SENATOR PHILLIPS said he believes that Alaska's public school foundation formula is broken and is not working for today's conditions. Therefore, this legislation is an attempt to rewrite the school foundation formula. He noted the Anchorage School District has approximately 40 percent of the enrollment and 30 percent of the funding, and many of his constituents have indicated there is something wrong with that picture. He pointed out that SB 36 was based on the McDowell Report which shows the actual costs of operating a school district and its schools versus a market basket approach. The funding is allocated based on a per student formula rather than the current instructional unit and it is his opinion, the public would be better served and would better understand a per student ratio versus the instructional unit. Number 0464 CHAIRMAN BUNDE inquired how many other states are using the per student formula and how many use the instructional unit. SENATOR PHILLIPS replied that only 7 states are using the instructional unit formula, which Alaska's current foundation formula is based on, and the other 43 states use the per student formula. CHAIRMAN BUNDE questioned if any of the states have changed from the per student count to the per unit formula. SENATOR PHILLIPS wasn't aware of any, but a number of states have changed from the per unit to the per student. Number 0515 REPRESENTATIVE TOM BRICE asked for a breakdown of the per student funding for the other 43 states. Number 0540 SENATOR GARY WILKEN, co-sponsor of CSSB 36(FIN) am, informed Representative Brice that formula fundings as well as other information from other states was available in his office. Number 0585 SENATOR PHILLIPS stated his second point is the size adjustment in the formula is based on the individual school instead of the funding communities. Funding communities under the current formula are not well defined and a fair comparison of instructional costs can be made at the school level. The third point is that adjustments for geographical cost differences are based on the McDowell Report of the actual costs of operating school districts instead of household cost of living. He added this is the first time it's been done in this manner since statehood. His fourth point is the required local contribution for municipal districts is set at 4 mills of assessed value or 100 percent of district state support; currently that limit is at 35 percent. He said, "We believe that by having that, we have taxpayer equity within the tax paying jurisdictions for their local contribution towards education." Fifth, categorical funding is set at 20 percent of state support plus funding for intensive needs students. This will remove any incentive in the current formula to identify students as special ed in order to qualify for additional funding. SENATOR PHILLIPS continued to explain his sixth point is that funding for statewide correspondence study programs offered by a district is set at .65 times average daily membership (ADM) the same as the state operated program. At least one school district has several times as many students enrolled in their statewide correspondence program than live in the actual district. This provision is intended to prevent districts from being in the business of providing programs to finance their operations. His seventh point is that CSSB 36(FIN)am provides reimbursement for district operated pupil transportation at 90 percent of actual cost. Currently, the Anchorage School District is the only district not fully funded at 100 percent; it's funded at 66 percent. He said the Senate Finance Committee had brought that up to 90 percent. His last point is that districts are required to spend at least 70 percent of student funding on instructional costs. The Education Week "report card" earlier this year criticized Alaska for spending too much money on school administration and not enough on instruction. Overall in Alaska, approximately 70 percent of public school funding is spent on instruction, with some districts spending about 75 percent on instruction and some spending closer to 39 percent. Number 0800 CHAIRMAN BUNDE confirmed that some districts were spending only 39 percent in the classroom and 61 percent was spent on administration. SENATOR PHILLIPS said that was accurate. He directed the committee's attention to a list of 18 school districts which breaks down the local contribution, cost per student, and the existing formula plus $50 million versus SB 36 plus $50 million. He stated this is not a perfect bill, but there are inequities within the tax paying jurisdictions, as well as inequities between the tax paying jurisdictions and the unorganized areas of the state. This bill attempts to rewrite a broken foundation formula which most everyone agrees or has at least expressed concern that the current system is broken. Number 0896 CHAIRMAN BUNDE verified that a copy of the McDowell Report was available in each of the legislative information offices. SENATOR PHILLIPS confirmed that and added that each school superintendent statewide had received a copy, also. CHAIRMAN BUNDE said that Senator Phillips had mentioned that special needs funding was set at 20 percent plus funding for intensive needs students. For the committee's edification, he explained the 20 percent includes gifted, special ed and bilingual. Intensive needs students are seriously disabled students who need personal care attendants, et cetera. Number 0949 REPRESENTATIVE FRED DYSON referred to the chart of state funding per ADM for selected school districts and said he didn't understand why there was no funding figures for the North Slope under SB 36. Number 0978 SENATOR JOHN TORGERSON, Co-sponsor, said, "The part of the bill that Senator Phillips referred to with the local effort, he said that in order to receive state funding, you'd have to come up with 4 mills or 100 percent of your prior basic need of the state funding in order to qualify for that - so it's whatever is less. The current formula says 4 mills or 35 percent of your prior basic need and that's currently what North Slope pays into. What that's (indisc. - paper shuffling) to the 100 percent in this bill, the North Slope, 4 mills would be roughly $50 million and the 100 percent is the lesser amount, I believe that's somewhere around $38 million or something which indicates that we do not put any state money in there. They pay 100 percent of their own education costs because of that formula. So that's why we show zero." REPRESENTATIVE DYSON questioned if that was true for Tanana, Unalaska and Valdez. SENATOR TORGERSON wasn't certain about Tanana. CHAIRMAN BUNDE noted the Department of Education would be furnishing the committee with an updated run of numbers next Wednesday. SENATOR WILKEN said in response to Representative Dyson's question, the easy way to think about it is the North Slope Borough has the capacity to fund their education about 30 times what the rest of Alaska has due to their wealth per student; about $6 million per student versus $225,000 per student for Anchorage and Fairbanks. He added, "But at the same time, because of a quirk in the formula in 1987, they're only required to do it at 35 percent, so they essentially are doing it at about one-eighth of what you and I are funding our education at. Even when they pay 100 percent of their educational requirement, which is an additional $11.6 million, they're still funding at a rate that is about one-third of what the rest of organized Alaska is, so there's a lot of (indisc.) about lawsuits and things because we treat them differently, and in deed we do treat them differently; we ask them to pay less and I don't think that's unfair at all." Number 1145 REPRESENTATIVE BRICE asked, "It goes back to the capitation - the 20 percent above and beyond for special needs - do we know how much, basically on a statewide average maybe, is spent on special education, how much is spent on gifted and talent, and then on vocational education?" SENATOR TORGERSON said the statewide average for all is 19. something percent. SENATOR WILKEN interjected said the average was 19 and that figure came from the Department of Education in SB 85, the Governor's education bill last year. SENATOR PHILLIPS pointed out that each school district has a different standard for the gifted and talented category. For example, Anchorage is about 4-5 percent whereas Juneau is about 9-10 percent. up to the local district so while the categorical funding is set at 20 percent, the school district decides how to split that up. He pointed out a problem with bilingual in that both the Lower Kuskokwim and Yukon School Districts go above 20 percent on the bilingual aspect of the categorical funding. In his opinion, it's an imperfection in the legislation and he will wait and see what happens as the bill continues to go through the legislative process. Number 1283 REPRESENTATIVE JEANNETTE JAMES said it appeared to her the assessed valuation of a community is always used as the measure of the wealth of the community. In the case of the school districts listed that get no money based on 4 percent of their assessed valuation, there's a falsification factor as to the wealth of the community because of the activity of the oil industry which is part of the calculation. She asked the sponsors if a comparison had been done which separated out the assessed valuation of the oil industry located in these areas from the other assessed valuation relating to the community; e.g., homes, personal property, et cetera. SENATOR WILKEN said the North Slope has a $217 million budget for 9,000 people. They have a cap on the budget that was put in place in the 1980s but it's an artificial cap that recognizes the fact there is extreme wealth per capita. The North Slope Borough is the only community that qualifies for a cap, referred to as the "30 mill cap" because 96 percent of the wealth in the community is generated by oil and gas. He added, "So, in order to be able to put a cap on what they can tax, there's the 20 mill tax cap, which we're all familiar with, and they're at about 18.5 mills out of the 20 that's assessable off the oil and gas properties in the state of Alaska." CHAIRMAN BUNDE noted the presence of Representative Pete Kelly and former Representative Bettye Davis. Number 1430 SENATOR PHILLIPS concluded that CSSB 36(FIN)am is a complex bill and he, Senator Torgerson and Senator Wilken have shared duties in the drafting. For individuals who don't like the legislation, he has asked them to come up with an alternative. In his opinion, putting more money into the current system isn't going to solve the problem in the long term. He is hopeful that CSSB 36(FIN)am will pass through the legislative process and once the formula is fixed, it's a policy decision of the legislature and the Governor as to whether or not more money should be put into the new rewrite of the foundation formula. Number 1502 CHAIRMAN BUNDE commented that passing this legislation perhaps will not guarantee additional money, but if his correspondence is any indication of the attitude of the majority of the people in the state, if the current formula is not changed, it guarantees there will not be additional money because it simply perpetuates inequity. Number 1516 REPRESENTATIVE GREEN asked if most of the negative responses from the public are primarily from districts who would receive less funding under a new formula. SENATOR PHILLIPS responded affirmatively. Number 1541 CHAIRMAN BUNDE asked Senator Torgerson to address the comparison done based on the assumption that $50 million was added to the current foundation formula in terms of the amount of money students in the Mat-Su School District or the Anchorage School District, for example, would receive versus students in other districts in the state. SENATOR TORGERSON explained that Senator Sharp had wanted to take a hypothetical $50 million and compare what the distribution would be under the current system to the distribution under SB 36. The determination was made on a per student basis and some districts went up from $4,000 per student to $4,500 per student. He said the handout prepared by Senator Phillips showed the actual dollar growth or loss in some of the districts. He said it's a good comparison and shows that the current formula plus $50 million would give his district, the Kenai Peninsula, about $3.6 million more in state aid support; the adoption of CSSB 36(FIN)am would give the district an additional $4 million; and the adoption of CSSB 36(FIN)am plus $50 million would be an additional $7 million. He pointed out the Kenai Peninsula might be somewhat different than other districts because of the number and size of rural schools in the district. There has been debate for years that the area cost differential wasn't anywhere near fair to the Kenai Peninsula because there are schools that children either walk to or get there by 4-wheeler and others where either a ferry or airplane are used. Those schools have always been on the same area cost differential as the rest of the district, which is the same as Anchorage. SENATOR TORGERSON referred to various charts; specifically the chart depicting the growth in categorical funding requirements which shows an overall increase of about 22 percent in new students and an increase of approximately 92 percent in the bilingual category. It has been a growing and out of control determination on how the state reimburses and qualifies for the bilingual category. Number 1715 CHAIRMAN BUNDE commented that CSSB 36(FIN)am has been portrayed as urban versus rural. He asked how many urban schools versus rural schools would lose funding. SENATOR TORGERSON said he didn't have the actual numbers, but added that 82 percent of the students would benefit from this legislation. SENATOR WILKEN noted it was about 27 urban and 26 rural, but a problem arises with defining rural and urban. He's heard comments that the Rural Education Attendance Areas (REAAs) obviously come out with less money, but the question arises as to what they are contributing for education. He added, "If you take and ask for, as we did at one time -- it's not in the bill now -- but you ask for a simple payroll tax of 3 percent, those folks that are what I'll say losers today, become winners. And probably the best example of that is the new Alaska Gateway that was put together - if they did a 3 percent payroll tax, they would go from a $1.3 million loss in this effort over the next two or three years to a gain of about $90,000. That gives an indication of what if folks will just help themselves a little bit in this effort, it helps the formula tremendously. So we must remember that there's still areas of the state under SB 36 that are contributing zero of their own money towards education, and frankly I don't like that but that's where we are today." Number 1820 CHAIRMAN BUNDE asked Senator Wilken to discuss the results of his study of 1996 earned wages in REAAs. Frequently, comments are made that people cannot contribute in REAAs because they simply don't have a cash economy. SENATOR WILKEN said based on comments he heard during his travels, he requested a report about a year ago from the Department of Labor of the earned wages reported on the quarterly employment security reports. The chart lists the REAAs (indisc.) equivalent census areas and shows that $460,991,899 by 18,341 people in 1996. He added, "When the Department of Education looked at that, they did a little definition differently than I and theirs was a bit more conservative - they said about $390 million, and that was when there was a 3 percent payroll tax in the equation." Overall, it's somewhere between $400 million and $500 million earned by about 18,000 people in the rural areas. The state support in 1996 to these REAAs listed was $135 million with zero personal return, which is about 22 percent of the $630 million budget. He simply asks these areas to find a way to help pay for education, just as the organized areas do. SENATOR TORGERSON said for a matter of clarification, the chart shows that $195,748,233 were government wages earned by 7,338 individuals, $265,243,666 earned by 11,003 individuals in the private sector, for a total of $460,991,899 wages earned. SENATOR WILKEN noted that's an average income of about $25,000 or $26,000 for these areas and the average income for the state is about $27,000. These figures do not include any income other than earned wages. Number 1968 SENATOR TORGERSON referred back to the bill and said that approximately $26 million is shifted by following the recommendations of the McDowell Report. One of the key components determined in that report was that 70 percent of the education budget is spent in the instructional unit - the classroom and pupil services - and there is no cost differential eligible for that 70 percent, which is one of the major reasons for the shift. He said it was important to keep that in mind because some districts had been receiving as much as 1.46 for an area cost differential and now we're saying that 70 percent of that isn't eligible for a cost differential. Number 2014 REPRESENTATIVE GREEN noted Senator Torgerson had earlier remarked that some districts were spending only 39 percent in the instructional unit and asked if adjustments were made for those districts or do they further get penalized. SENATOR TORGERSON responded that another portion of the bill mandates that 70 percent of the funds appropriated be spent in the instructional unit. He explained that previously the statute mandated 55 percent be spent in instructional unit, but that was amended out of statute in 1982. He continued, "Some of you might remember earlier that I had a piece of legislation that required an administrative cap and it was basically $950 per student that was adjusted by the area cost differential to bring that gap of administrative costs a little closer. Currently, we have a low of $695 - this is both district and school - in Ketchikan to a high of $6,501 in the Aleutians, so the administrative cap was just all over the board. But in lieu of that and since we had a report from an independent consultant that said 70 percent, we went ahead and took all the administrative caps out of there and said we want 70 percent of this money in the classroom. Because this is a large impact on some of those districts - you mentioned, Representative Green, 39 percent - we put a phase in of 60 percent to 65 percent to 70 percent so that they can work their way into this and we also provided in the bill for a waiver provision that if the district says there's just no way we can get to that, it goes to the State Board of Education and the commissioner, to grant the waiver so there could be an additional review of this." He noted there will be an impact on districts having a lower percentage in the instructional unit if they are unable to substantiate it through the waiver process. He pointed out that staying with the 70 percent will reinvest $42 million into the system. Number 2118 CHAIRMAN BUNDE verified that if the formula in this legislation is adopted, there would be an additional $42 million in the classroom. SENATOR TORGERSON replied, "If you take the 70 percent." He added that some school districts may be able to prove that fuel expenses or travel costs, et cetera, are high and 70 percent may not be appropriate for those districts. SENATOR TORGERSON noted each school district has been mandated in the past to have a school administrator. The bill changes the language from "shall" to "may" to encourage some of the smaller districts to join under one superintendent. CHAIRMAN BUNDE asked the sponsors to give a sectional analysis for the committee. Number 2307 SENATOR TORGERSON said Section 1 is the purpose section. Section 2 enacts new sections providing state funding for public schools. Sec. 14.17.300 establishes the public school account and provides that money in the account can only be used for public schools, community school programs or centralized correspondence study. Sec. 14.17.400 provides that state funding for school districts is the amount calculated under AS 14.17.410. It provides for a pro rata reduction in state funding if the amount appropriated is insufficient to meet the authorized amounts. He said, "In the Governor's FY 99 ... TAPE 98-30, SIDE B Number 0001 SENATOR TORGERSON ....budget of $660 million and change to come up with a student dollar and backed that number into the student dollar -- the department did -- and what this section is, if the legislature was to come in with a lesser number than that, then all the numbers would be prorated accordingly." SENATOR TORGERSON continued that Sec. 14.17.410 establishes a formula for funding public schools. Under subsection (b) public school funding consists of a state share and a local contribution from city or borough school districts. Subsection (b)(1) is the state share and subsection (b)(2) is the city or borough local contribution. Subsection (c) establishes an optional local contribution for city or borough school districts. Subsection (d) prohibits state funding for a city or borough school district that does not make the local contribution required under subsection (b)(2). Sec. 14.17.420 provides state funding for special needs children and for intensive services. He explained the number of students is multiplied by a special needs factor of 1.20 for the bilingual education, special education, gifted and talented education and vocational education. Sec. 14.17.430 provides state funding for the state centralized correspondence study program, for district statewide correspondence programs and for district-only correspondence study programs. CHAIRMAN BUNDE asked if the bilingual program grew more rapidly than the general student population. SENATOR TORGERSON responded that overall there was about a 22 percent increase in student growth and a 92 percent increase in the bilingual program. Number 0123 CHAIRMAN BUNDE noted that encouraging students into the bilingual program is a mechanism which increases funding. SENATOR TORGERSON responded that either the statutes or regulations allow school districts to set up their own rules on who qualifies for categorical funding and the state provides funding based on the determination and the count. Theoretically, audits are done on the districts to verify the counts, but very few audits have been done. CHAIRMAN BUNDE reflected that one summer he and his family went commercial fishing on a beach site and for the next four or five years, the Anchorage School District encouraged them to place the kids into a migrant worker program because the district got more money for that program. Number 0158 SENATOR WILKEN referred to the chart entitled "Bilingual/bicultural instructional units 1988 to 1998" for five actual school districts from the same area of the state and said from 1998 to 1994 instructional units went from about 53 units down to about 48; however, in 1995 one school district increased from 48 units up to about 82 units and a year later up to 94 units. Each unit is funded at about $61,500, resulting in an additional $2.5 million for that school district. He pointed out the other four districts in the same area of the state remained relatively flat from 1988 to 1998. As Senator Torgerson mentioned earlier, while a district defines and the state funds, the district has no obligation to spend that money for the purpose from which it was derived as a revenue. Number 0222 REPRESENTATIVE JAMES asked Senator Wilken if his research into the categorical funding had included any of the more populated areas of the state to determine if there had been an increase for any language other than the Alaska Native language. SENATOR WILKEN responded it was not broken down by district or language. He directed her attention to the graph, "Growth in Categorical Funding Requirements" and reiterated the overall increase in students was about 23 percent for the period 1988 to 1997, while the bilingual/bicultural grew at a rate of about 90 percent. He said this is an interesting graph and shows one of the reasons why the current formula is broken; the district defines and counts and the state just funds it. REPRESENTATIVE JAMES said it appeared to her the flaw would have been in the identifying of students being served as opposed to students who had a need. SENATOR WILKEN responded, "No, but I think you've hit the problem right on the head. And that is the state doesn't need to be nor should it be unless we want to fund some sort of an audit and for that matter, categorical funding police, we shouldn't be in this business. This is a foundation formula; this is to give everybody an equal amount upon which they can build a special ed program. That, I think, was the intent a year ago at 20 percent, based on the 19 percent so that if one district has a different requirement than the other, then they simply fund that out of their own school district. It's a local choice issue and you can use your 20 percent - which in this particular formula is almost $197 million is set aside and earmarked for special ed - and it's up to the school districts, as it should be locally, to decide how they want to spend it ...." Number 0412 REPRESENTATIVE BRICE asked if the state were to capitate categorical funding, would we be running askance of federal requirements? REPRESENTATIVE WILKEN wasn't aware of any federal requirements for categorical funding. He noted there were some hard lines on the $22,500 for the developmentally disabled but that's not part of this program. Number 0459 SENATOR PHILLIPS pointed out there are three different categories under the bilingual program and the funding varies with each of the three different categories. Number 0491 REPRESENTATIVE GREEN observed there are several bills in process dealing with part-time students and wondered how part-time students were dealt with in this legislation. SENATOR TORGERSON indicated there were provisions in CSSB 36(FIN)am dealing with how part-time students are counted, but he didn't recall exactly what they were offhand. REPRESENTATIVE JAMES observed that fetal alcohol syndrome (FAS) and fetal alcohol effect (FAE) were more prevalent in some districts and asked if that had been taken into consideration in terms of the special education category. SENATOR WILKEN responded no, but the severely disabled wouldn't fall under this category; they would fall under the developmentally disabled category. Number 0603 SENATOR TORGERSON, continuing with the sectional analysis, said that Sec. 14.17.430 provides state funding for the state centralized correspondence program and also district program. He noted this had been somewhat controversial as it relates to Galena, as well as a couple of other districts, where the state was paying the statewide correspondence programs at the same area cost differential that they qualified for their district. Galena started a program which grew at such a rapid pace, the commissioner of the Department of Education limited their cost differential to 1.0. This legislation further limits the cost differential to .65 which is the rate paid to the Alyeska Correspondence School. He said, "In the debate that surrounded this, the Galena School District was attempting to get additional money because they used some of this money to free up some other money that pays for their charter boarding school. I never saw any debate from them that indicated that they could not operate the statewide correspondence school for this, but they did use the additional money to do a boarding school. We did try to work on several fixes for that and we couldn't come up with any that were satisfactory, anyway at that time. I think it was our intent to promote, as much as we can, leaving the boarding schools and not try to take away funding for those but it's one of the areas that needs some work on in this bill." Number 0669 SENATOR TORGERSON stated Sec. 14.17.440 provides state funding for state boarding schools, which is basically Mt. Edgecumbe. Sec. 14.17.450 establishes the school size factor for purposes of determining a school's public school funding. CHAIRMAN BUNDE said at one time there was specific legislation which specified that Mt. Edgecumbe could be the only state funded boarding school and he wondered if that changed in CSSB 36(FIN)am. SENATOR TORGERSON noted that legislation had passed approximately a year ago changing boarding school to boarding schools. He pointed out that Galena is a charter boarding school and based on legislation that passed last year, charter boarding schools cannot use state funds to house and pay for housing of students. Clearly, that's what Galena is doing, but they're freeing up other money; it's not illegal, but the intent is so they can operate the regular charter school. Number 0747 SENATOR TORGERSON said that Sec. 14.17.450 establishes the school size factor for purposes of determining a school's public school funding and is the heart of the McDowell Report. He stated, "Basically, you would take your school ADM and use this chart like you would a tax table, to borrow McDowell's words, and you would find where your number of students are in relation to your school and then you would go across the chart and you'd see -- if you take 75, for example on line 14 -- if you have a school of 75 students, you'd be paid for 122.85 students and anything above the 75 up to the 150, you would receive 1.27. Mr. Chairman, what this whole chart does is it shows that there's a certain amount of administration and a certain amount of cost associated with operating a small school and remember the McDowell Report says the costs are the same no matter where you're located for doing that. So if you had a school in Anchorage or a school in Nome that was this size, it would cost you about the same percent. And then back to the instructional - 70 percent of that did not deserve an area cost differential. This also shows, Mr. Chairman, that if you get up to the 400, that's where you reach your efficiencies, so a school the size of 400, you'd see that the multiplier drops down to .97 so the students don't actually earn the total amount on a per student basis. This is really the heart of how we, by adopting this out of the McDowell Report, on how we identify the costs per school." SENATOR TORGERSON explained that Sec. 14.17.460 is also out of the McDowell Report and relates to the remaining 30 percent paid to the districts. The district cost factors are a combination of the nonpersonnel costs as well as the district administrative costs. The McDowell Report did not make any determination as to whether this money was being spent in an effective, efficient manner as far as nonpersonnel, superintendent costs or central office costs. This reflects actual dollars spent off the financial statements of the districts. Number 0866 SENATOR TORGERSON said that Sec. 14.17.470 establishes the base student allocation for purposes of determining a district's public school funding. Sec. 14.17.500 requires certain student count data be reported to the department. Sec. 14.17.505 establishes requirements concerning year-end fund balances for a school district and establishes a penalty for violating this section. Sec. 14.17.510 requires the Department of Community and Regional Affairs to determine the value of taxable real and personal property for purposes of calculating a city or borough school district's local contribution. Sec. 14.17.520 imposes a minimum expenditure for instruction requirement on school districts. Sec. 14.17.600 establishes student count reporting deadlines for school districts. Sec. 14.17.610 establishes a payment schedule for state funding for school districts, requires excess funding be returned to the state and provides for advance payments at the discretion of the commissioner. Sec. 14.17.900 provides that AS 14.17 does not create a debt of the state and requires each district to operate under a balanced budget. Sec. 14.17.920 requires the department to adopt regulations to implement this legislation and Sec. 14.17.990 is the definitions section. Number 0955 SENATOR TORGERSON continued that Section 3 repeals a provision requiring a report be provided to the chief school administrator. Sections 4, 5, 6, 7 and 8 are technical amendments. Section 9 provides that REAAs may employ a chief school administrator. Section 10 repeals the requirement that an REAA school board employ a chief school administrator. Section 11 requires that school districts be reimbursed for student transportation system costs at certain percentages. Sections 12 and 13 are technical amendments. Section 14 provides that a city or borough school district may employ a chief school administrator. Section 15 requires the chief school administrator to follow school board policy. Section 16 requires that employees hired by a chief school administrator are subject to school board approval. Section 17 repeals a requirement that state boarding schools hire a chief school administrator. Sections 18 and 19 are technical amendments and Section 20 repeals a requirement that limited teacher certificates be requested through the chief school administrator. Section 21 amends the provision relating to chief school administrator approval of transfers of teachers. Section 22 amends a provision relating to intradistrict teacher reassignments. Section 23 allows a district to implement a tenured teacher layoff plan if state funding decreases by 3 percent or more between fiscal years. Section 24 is a technical amendment. Section 25 provides that an exceptional child shall be transported with other children if the district provides transportation to other children in the district. Section 26 provides that if certain special education appropriations are insufficient, the allocation described in this section shall be reduced on a pro rata basis. Sections 27 through 31 are technical amendments and Section 32 provides that child care facility grants shall be adjusted by the same factor as school district funding under AS 14.17.460. Section 33 is repealers, Section 34 establishes a two year transition period for public school funding and Section 35 provides that regulations adopted before the effective date of this Act remain in effect if consistent with the provisions of this Act and requires the department to define by regulation the term "school". Section 36 requires the initial proposed district cost factors be submitted to the department by January 15, 2001. Section 37 imposes a two year transition period for the base student allocation. Section 38 requires that certain small schools be included in the largest school in the district for purposes of calculating the school size factor under AS 14.17.450, which is basically for schools of 10 students or less. Section 39 establishes a two year transition period for the minimum expenditure for instruction requirement imposed under AS 14.17.520 and Section 40 is the effective date. Number 1169 SENATOR TORGERSON said that concludes the sectional analysis. He said the Senate struggled with the provision that all Alaskans pay something for the cost of education. Senate Bill 36, at one time was the combination of four other bills which had different mechanisms for requiring the local effort. He stated, "We did have the 3 percent payroll tax idea that Senator Wilken spoke about earlier to make that local requirement. We had in the bill that anybody that wanted to opt out of that certainly could and become a borough or become whatever they wanted to be, could have their own tax base or their own method of raising that tax, they certainly could do that, or they could bring a proposal to us through the petition process and we would do that as an assembly for the unorganized borough. Basically, the Senate decided not to go forward with that issue and they decided that we'd rather do a mandatory third class borough. So, we currently have the mandatory third class borough issue up before us in Senate Finance. We had hearings on it last week and I'm not sure when it's rescheduled again for the next hearing." SENATOR TORGERSON further stated, "Basically, a third class borough, just to refresh your memory, has only two powers; the power of taxation and the power of education. We currently have only one third class borough and that's Haines. When that was created, there was some talk about some other boroughs dropping down to that level, my understanding is, and so the legislature put a prohibition on any more third class boroughs so they would only have the Haines borough. But this recognizes that we're not really trying to force local government on unorganized Alaska but for one, we should consolidate school districts, this would -- if we mandated the third class boroughs, we would have one school district or one REAA per borough boundary. This is currently the case in the other organized boroughs and it would also give them the power to come up with whatever taxation measure that they'd like to do to make their local effort." Number 1291 SENATOR TORGERSON reminded committee members there are four boroughs in the state that currently do not have a property tax and use some other form. The Northwest Arctic Borough has a severance tax or resource tax on Cominco; the Denali Borough has a combination of a severance tax on Healy coal and a bed tax; one has a fish tax complemented with a sales tax issue. There are ways other than a payroll tax to come up with the required local effort, and it allows an existing organized entity to determine how to pay their taxes. He wasn't sure where that legislation would go, but it is a big issue. Number 1365 CHAIRMAN BUNDE recalled that last year the Governor introduced legislation to rewrite the foundation formula and set a minimum of 10 students for a school. He asked what the minimum was under CSSB 36(FIN)am. SENATOR TORGERSON referred to Section 38 and said that a school of 10 would be added to another school and combined; it doesn't run through the formula as a separate school. CHAIRMAN BUNDE confirmed that nothing in CSSB 36(FIN)am would require a school of three or four students to close. SENATOR TORGERSON said not that he was aware of. CHAIRMAN BUNDE observed there was some migration among schools between spring and fall and that CSSB 36(FIN)am did not mandate a spring count. He wondered if that had been discussed. SENATOR TORGERSON said it had not been discussed in his presence. He assumed the fall count was included in all the legislative bills and it wasn't brought out as a separate issue to be debated. As far as he knew, it was in existing language. CHAIRMAN BUNDE asked how much money would have been generated for local contribution .... SENATOR TORGERSON interjected 3 percent; it was roughly $18,300,000. SENATOR WILKEN commented that it's about $3.5 million to $4 million for every 1 percent. Number 1488 CHAIRMAN BUNDE asked the sponsors to address two concerns he's heard from people: 1) expanding the hold harmless; and 2) addressing the notion that the state is mandated constitutionally to provide an education and should be funding it at 100 percent. SENATOR PHILLIPS noted that under the constitution, the state is required to provide a system for public education for children. He asked Senator Torgerson to address the second issue. SENATOR TORGERSON said, "People have brought that up and wouldn't it be a great world if we could surpass the $240 million that local governments are putting in education now. But we're only doing two-thirds of the thing. Local governments that are now paying, pay in a tremendous amount. I don't know -- I think even under the mandatory borough act, that was one of the reasons back in '63 when they formed all the boroughs that we're in currently. Those powers were pretty general in nature but the largest ones that we're trying for is the local contribution, the taxation and education issues. As far as a longer transition period, Mr. Chairman, we picked two years, it could have been three that we picked. The Lower Kuskokwim district does lose a substantial amount of money under this; they go down from $10,618 a student they're currently being paid today to $8,615. So, they lose about $2,000 a student. Our transition period says you do one year half of that and the other year the next. Just to say we're going to hold harmless forever doesn't fix the problems that we have in the formula. So, in our debate when we were pushing this bill through the Senate, it was just decided that we'd do the two year period. And it is a policy call and it is a tough issue for that district and some of the others and it could be that we might entertain a longer transition period. I think the overall goal here is we're going to change the system to get this more equitable and it's tied in with no only holding the district harmless for a few years, but a district that might pay some for their educational costs. Keep in mind the Lower Kuskokwim has a town of 6,000 and they don't pay a dime towards education." Number 1658 CHAIRMAN BUNDE asked if Senator Torgerson was implying the $2,000 student decrease in the Lower Kuskokwim could be made up in part by some local contribution. SENATOR TORGERSON commented if they were to do a 2 percent sales tax, a tremendous part of the $11 million would be covered. SENATOR WILKEN interjected the city of Bethel did a study which indicated that a 2 percent sales tax would cover their entire educational requirement. He added based on his numbers, a 3 percent payroll tax would generate about $3.2 million that could be contributed to education. He said the chart previously discussed indicates that area of the state had about 4,900 people who earned about $120 million in 1996, so obviously there's some wealth. Number 1727 SENATOR TORGERSON explained the reason for deciding on the payroll tax idea was the collection; the fiscal note from the Department of Labor was about $200,000 which is relatively small compared to some of the other ideas looked at. Currently, all employers are required to file a report of employment security contributions with the department and it was the intent to generate a new form that would identify the school contribution. Number 1787 CHAIRMAN BUNDE said people have suggested an increase and a reinstatement of the old school tax. He inquired if that idea had been discussed. SENATOR TORGERSON said it was to some degree; however, a $10 tax for 300,000 working people would generate $3 million or a $100 tax would generate $30 million, which really doesn't go very far in meeting the problem of funding education. It's certainly something that could be looked at but in the scope of things, it just doesn't generate enough money to solve the problem. Number 1856 CHAIRMAN BUNDE commented that numbers differ depending on the issue; for example, when the subsistence issue is being discussed, he hears that 60 percent of rural Alaska is non-Native, but with the educational funding issue, he hears that 70-80 percent of rural Alaska is Native. He asked if Senator Torgerson knew which factor is correct. SENATOR TORGERSON said it really hasn't been looked at because it is really a non-issue. Number 1923 REPRESENTATIVE BRICE asked the sponsors to explain the property valuation in general. SENATOR TORGERSON said as the local assessed value rises, state aid goes down. He explained that his borough can't put any more money in because it is up against the caps. He said, "What has happened with this bill as not a direct measure but we picked it up in the runs that we got from DOE, is that we actually are -- because we're increasing the state aid to some districts because of the redistribution of funding and because of asking North Slope to pay 100 percent, -- we're actually shifting some money back in there and increasing the amount of state aid both to Fairbanks and my district which then makes the amount of money you can put in for local effort higher - or more is available. It really wasn't an intent, but that's how it came out. The cap that is placed upon us statutorily is the 4 mills for the state aid or the 35 percent and then it's 2 mills or 23 percent of state aid, whichever is greater and that's where the cap comes from." He is of the opinion that assessed valuation is used as the trigger to indicate the worth of an area. Number 2123 REPRESENTATIVE JAMES said she understands this legislation deals with funding, not the best way to deliver education. It is her opinion that ten students is too few for a school, which she recognized had been addressed by joining them with another school. However, she wondered if the sponsors had looked at other issues, in addition to the number of children in a school, that would relate to the performance of the schools in terms of addressing the best way to deliver education. SENATOR TORGERSON said, "The best thing I can say or the closest thing we have done to that, when we adopted the McDowell Report and their tax table way of reimbursing districts for their school by school, it's recognizing that the smaller schools need maybe a principal and a counselor and you may have 15 or 20 students or 50 students in there or a school of 100, you might have the same amount of students in there. So, that's why when they put that per student adjustment to the ADM in their calculations, it reimburses the smaller schools substantially more than a larger school. They made that formula and that curve based upon the audited financial statements or the costs that are coming in now." REPRESENTATIVE JAMES said she understands that, but it doesn't get to the problem of having smaller schools where the performance is poor. Her concern is that giving a school extra money will encourage them to stay small as opposed to figuring out a better way to educate their children. TAPE 98-31, SIDE A Number 0001 SENATOR TORGERSON said there are a couple of bills which include those standards, and in fact, amendments to this legislation had been drafted but many of the school districts indicated they did not want any more unfunded mandates. It doesn't mean professional standards aren't important in this legislation, but the sponsors hadn't included them. Number 0038 REPRESENTATIVE JAMES commented that it would probably require different legislation; it wouldn't be appropriate for CSSB 36(FIN)am. SENATOR TORGERSON thought the title was broad enough to incorporate the standards if an agreement could be reached as to what performance standards should be included. He noted the Administration wants more accountability and this legislation doesn't bring accountability into it. He added that school districts view accountability as unfunded mandates. CHAIRMAN BUNDE noted he frequently hears the comment about a number of programs, including education, that "you don't pour good money after bad" and it's not very logical to reward a school for poor performance by giving them more money. REPRESENTATIVE PORTER recognized this legislation has caps in terms of the 4 mills, up to 100 percent or whatever is less, but he questioned if there was still concern with the federal disparity issue. SENATOR TORGERSON responded there is always concern with the federal disparity. The Department of Education did a computer run in relation to the federal disparity and it dropped down to about 19 percent as opposed to the current 23 percent. If a local effort was required, it would probably go back up to the 22 or 23 percent level. Number 0278 CHAIRMAN BUNDE asked Senator Wilken to comment on the other iteration of how the PL-874 money was to be used. SENATOR WILKEN said, "It's really difficult but we kept in -- we tried to take it out originally, but the numbers just didn't work, so we recognized it and stayed within the disparity. The real issue is that there were five districts in the state that were up against the cap - it's really an artificial number that was really hurting five districts - and with the increase in funding to the formula itself, those caps are increased so the disparity issue falls away as long as we (indisc.) it. And as Senator Torgerson said, according to DOE we are within it and I take confidence in their numbers. The folks over there really know that issue inside and out and it's difficult at best, but it seems like we're safe in what we've got so far." CHAIRMAN BUNDE said as he understood disparity and the PL-874 money, disparity is continuing to decrease and it will be more and more difficult to fall under the cap in the future. REPRESENTATIVE BRICE commented, "I think when we're talking about accountability, because it is a discussion that I've had and actually had a piece of legislation drawn up that would basically break down some of the barriers that DOE had to address the Adak issue - I mean, let's call it what it was - and frankly, I think much to her credit, Commissioner Holloway has finally pretty well gotten that thing put to rest. It would be nothing to throw a couple of lines in here that wouldn't cost a penny to break down some of those issues and I'll approach you guys about that a little bit later." He asked if a school district with multiple sites would receive a check for each site or a lump sum for all the schools in that district, with the district allocating the money for each school. SENATOR TORGERSON said it is not the intent to change the current distribution. He added, "It's just that each school now, because of the McDowell Report - we wanted to know the cost of operating a school, not the cost of the entire district, so you go to each school for the ADM and then you run it through that table - but you qualify it in one way and then when it comes to the district to maintain -- as a matter of fact, we even have that in the intent language -- to maintain the maximum local economy, we want them to be able to distribute those funds." Number 0539 SENATOR PHILLIPS commented the intent is that the money goes to the school district and it's up to the constituency, school board and the assembly in the organized areas to determine how those funds are allocated. In the unorganized areas, it's up to the constituency and school board to allocate the funds. REPRESENTATIVE BRICE inquired if charter schools would be counted as a regular school within the district and they would receive the same level of funding as a regular school. REPRESENTATIVE TORGERSON remarked a charter school would be counted as a regular school. CHAIRMAN BUNDE asked if there were further questions for the sponsors. He announced that CSSB 36(FIN)am would be held in committee and heard again on Wednesday, March 25.
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