Legislature(1993 - 1994)
03/09/1993 03:00 PM House HES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 156 - PUBLIC SCHOOLS AND PUBLIC FACILITIES FUND HB 157 - APPROP: PUBLIC SCHOOLS/FACILITIES FUND Number 060 SHELBY STASTNY, DIRECTOR OF THE OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, testified in Juneau on HB 156 and HB 157. He said the governor and Department of Education have long been concerned with deteriorating conditions at some state schools, and with the inability of the annual appropriations of about $25 million to fund even all construction projects on the priority one list, let alone the $800 million in projects on the entire list. He said he had been in consultation with the department and the administration to address the situation this year, and considered as a funding source the permanent fund's earnings reserve, with partial matching funds from school districts. MR. STASTNY explained that shortly after introducing legislation to that end, the attorney general announced a settlement with British Petroleum (BP) of long-standing tax disputes, in which the state received $630 million; which was almost exactly what was needed for a four-year school renovation effort. Mr. Stastny said HB 156 represented an effort to spend that settlement on school construction and maintenance. A sponsor substitute recognized that six percent of the money must go to the Mental Health Trust, making $592.2 million available for a school construction fund. Number 119 MR. STASTNY acknowledged that future legislatures could spend the money even if it was partitioned off in such a fund, but the partition was a gesture of good faith intended to fund school construction over four years. He recommended spreading the work over four years, as the state had insufficient construction forces to do it all in one year. Number 142 REP. BRICE asked if the governor had included using the money to bring the technology in schools up to some standard. MR. STASTNY answered no, the division felt strongly that deferred maintenance and unhoused students were more important than technology in the schools. He noted that HB 156 and HB 157 would free up other money for the state that might be used for that purpose. Number 162 REP. NICHOLIA asked if the governor had considered spending the settlement money on rural water and sewers, and whether he would consider an amendment to the bill. MR. STASTNY replied no, the governor would not consider such an amendment to HB 156, as the bill was aimed at a specific problem with schools; and once money was diverted for other purposes, the specific problem would go unaddressed. But he noted that the governor had included about $42 million in the last two budgets, and in the current budget, for rural water and sewer problems. Number 182 REP. NICHOLIA asked about placing some of the BP settlement money into the earnings reserve account. MR. STASTNY said he believed the money was available and not to be used for the earnings reserve. He equated the state's school situation with a family facing a dire need for food and shelter, and considering whether to fix the roof and buy food or put the money into a savings account. Number 190 REP. VEZEY asked Mr. Stastny's opinion of why the state needed a schools facility maintenance fund when the Education Endowment Fund had already been established. MR. STASTNY said that the Education Endowment Fund had been established with the intent that only the interest would be spent. The schools facility maintenance fund would be set up and would see its principal expended to build schools. REP. VEZEY asked whether the source of funding for the schools facility maintenance fund was all royalty settlements or just the BP settlement. MR. STASTNY said that the schools maintenance fund was to be set up only with the BP settlement money, not any past or future settlements. Number 215 REP. VEZEY asked whether HB 156 and HB 157 would be voided if the money from the BP settlement had to go to a constitutional earnings reserve account. MR. STASTNY answered yes. Number 217 REP. BRICE asked whether the attorney general had issued a written opinion on the question of whether the money from the BP settlement should go to a constitutional earnings reserve account. MR. STASTNY said that he had, and it could be made available to the committee. The opinion stated that the money from the BP settlement should not be deposited in the constitutional budget reserve because it came from an administrative settlement before the formal hearing process. (Rep. B. Davis arrived at 3:20 p.m.) Number 230 CHAIR G. DAVIS invited Gary Bader to testify. GARY BADER, DIRECTOR OF THE DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF EDUCATION, testified in support of HB 82 and HB 83, which would receive money if HB 156 and HB 157 were passed. He said HB 82 would establish two categories of grants: construction and major maintenance grants, which would build on the existing school funding process known as the HB 37 process, and would establish a requirement that school districts match state grants with their own funds, ranging from 5 percent to 40 percent of the state grant for FY94, depending on the wealth of the districts. That matching percentage, for schools with more than $100,000 average daily membership (ADM), would increase 5 percent each year. The match for Rural Education Attendance Areas (REAAs) would be set at 3.8 percent, phased in over four years, increasing by nothing in FY94, 1 percent in FY95, 2.4 percent in FY96, and 3.8 percent in FY97. Number 260 MR. BADER spoke to HB 83, including 24 projects the Department of Education had classified as health-life-safety projects, and two previously funded projects totalling $6 million, making a total of $771 million in projects submitted by school districts. Section 1 of HB 83 appropriates $107,688,000 to the school construction grant fund for all priority one projects submitted, and the first 11 unhoused student programs, he said. Mr. Bader said HB 83 also appropriates $42,312,000 for the major maintenance fund to deal with category three and four before they became health-life-safety projects. REP. G. DAVIS apologized for letting Mr. Bader testify on HB 82 and HB 83, when discussion had begun on HB 156 and HB 157. Number 295 REP. VEZEY asked for a definition of ADM. MR. BADER answered that ADM meant "average daily membership." REP. VEZEY asked for examples of communities with "full value" of property less than $100,000 per ADM, as referred to in HB 82, page 2. MR. BADER answered that the Railbelt Denali Borough, St. Mary's, Hydaburg, Klawock, Nenana, Kake and Hoonah were communities with less than $100,000 in taxable real value per student. REP. VEZEY asked which communities had between $100,000 and $200,000 worth of property per student. MR. BADER answered they were Tanana, Galena, Yakutat, Lake and Peninsula Borough, Craig, Nome, Northwest Arctic and Mat-Su. REP. VEZEY asked which communities had between $200,000 and $600,000 worth of property per student. MR. BADER answered they were Fairbanks, Aleutians East, Dillingham, Wrangell, Anchorage, Petersburg, Haines, Sitka, Juneau and more. REP. VEZEY asked which communities had more than $600,000 value of property per student. MR. BADER answered they were Bristol Bay, Unalaska, Valdez, and the North Slope Borough. Number 320 (Rep. Bunde arrived at 3:28 p.m.) REP. G. DAVIS proposed taking testimony on HB 156 and HB 157, and attempted to yield the chair to Rep. Bunde, who declined. Number 354 DON GILMAN, MAYOR OF THE KENAI PENINSULA BOROUGH, testified via teleconference from Soldotna on HB 156 and HB 157. He said the borough supported state aide for school construction and maintenance funds. He said the current AS 14.11.05-19 needed to be rewritten, as the current process was not working for larger school districts. While the district supported any reasonable funding source, including bonds, permanent fund undistributed income account, new taxes, settlements, he said legislators, not school districts, should make such decisions. He praised the administration for addressing a major school issue. Number 374 REP. BUNDE asked Mr. Gilman if he would support any funding source, including new taxes. MR. GILMAN answered yes. REP. BUNDE said Mr. Gilman was a brave man. CHAIR G. DAVIS, hearing no further public testimony on HB 156 and HB 157, brought HB 82 and HB 83 to the table. REP. B. DAVIS asked if the board planned any action on HB 156 and HB 157. CHAIR G. DAVIS answered no; the committee would just hold hearings. Hearing no other requests to testify, he invited Mr. Gilman to testify on HB 82 and 83. HB 82 - SCHOOL CONSTRUCTION MAINTENANCE GRANTS HB 83 - APPROP: PUBLIC SCHOOLS/FACILITIES FUND Number 394 MR. GILMAN said that HB 84 did not go far enough in changing school funding. He said the state should scrap the HB 37 funding process for schools as too bulky and time-consuming. He said he supported creation of different two funds: for school construction and for major maintenance. He said every school district in the state had maneuvered to get its projects to the top of the list, and much of the $770 million in requests for FY94 was not truly what the districts needed and, if school districts were honest with themselves and the state, they would establish different funding priorities if given the chance. He expressed support for matching funding on a sliding scale based on ADM, but opposed the 5 percent per year increase in the sliding scale, because it would encourage districts to hurry to have their projects built in the earlier years, and because the public would balk at voting for school construction bonds without being sure of the final cost for the work. Number 442 REP. BUNDE asked Mr. Gilman what he would consider a fair maximum local contribution. MR. GILMAN said that many districts felt that a 30 percent local contribution, or a sliding scale up to 30 percent, was fair. REP.BUNDE asked what would be a fair minimum, and noted that the bill called for a minimum of 3.8 percent phased in over several years. MR. GILMAN said he did not know, as he did not know the financial situation of the REAAs, though he knew it was hard for them to come up with cash for matching funds. He said the REAAs should be required to make some matching contribution, either in sweat equity, land, or something to ensure some local contribution. Number 465 CHAIR G. DAVIS ended discussion on HB 82 and HB 83 and said no action was planned on those two bills during the meeting. Number 474 JIM BALDWIN, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW, testified from Juneau via teleconference answering questions. He said the department had issued a written opinion saying the BP settlement did not have to be deposited in the constitutional budget reserve fund. He pointed out that other bills pending in the legislature would have the opposite effect. He noted the question of whether some of the appropriation under HB 157 would have to go into the mental health trust. He cautioned the committee top avoid making double deposits to the trust through HB 157. He said the attorney general had asked him to make clear that the current legislature should not feel bound by a previous legislature's policy decision to deposit six percent of general fund income into the mental health trust income account, as provided in AS 37.14.011, and that the actual amount of contribution could be varied up or down. CHAIR G. DAVIS acknowledged Mr. Baldwin's advice, and noted that committee members had been given copies of the attorney general's 21-page opinion on the issue. Chair Davis said, "It seems strange to me, not being an attorney, I read that statute and I thought it was pretty plain language, and I feel my interpretation does belong there, although I have 21 pages of testimony here by our experienced attorneys that says I'm wrong. I'll be looking forward to reading that." Number 530 REP. BUNDE commented, "Not really a question, thank you, Mr. Chairman, just something to clarify, perhaps. I'm not an attorney, but I am the chairman of this committee, and that money will not be used to move a bill out of this committee." REP. VEZEY asked what would happen if the legislature passed HB 82 and HB 83, and the measure were later challenged in court, and if the Alaska Supreme Court were to order the BP settlement money to be deposited into the budget reserve. Number 540 MR. BALDWIN answered that he understood that HB 156 would create a reserve fund into which HB 157 would appropriate funds. He said he did not know of further plans to spend from the reserve fund. He said under the bill, money is transferred to the mental health trust income account. He said that, if Rep. Vezey's scenario were to pass, that "there will have to be some readjusting of the books. In other words, revenues would have to be deposited to make up the difference, if amounts are expended from the reserve fund. And what we've said in our opinion basically is that the constitutional budget reserve fund should be interpreted in a way that leaves all valid dedicated funds intact. So to the extent that the mental health trust income account is a valid dedicated fund, the constitutional budget reserve fund should not be interpreted in a way to interrupt any amount of revenue that would go to that fund. So under statute, if six percent is mandated to go there, and it is considered a dedicated fund, then that money would have properly gone there under our interpretation (of the) constitutional budget reserve fund, and I don't see that the supreme court interpreting the constitutional budget reserve fund as being an implied amendment to the other dedicated funds which are properly created in the constitution, for example, the Alaska permanent fund, I don't see them doing that, so I don't think there's going to be a lot of disruption on that part. And to the extent that amounts are not expended from the reserve fund, which is created in 156, then the legislature would have the option of going back and transferring the money from the reserve fund to the constitutional budget reserve fund. So I'm not sure a whole lot of chaos would result. It only, it's potentially the amount expended and removed from the control of the state treasurer." Number 570 REP. VEZEY asked whether Mr. Baldwin had said that if the supreme court overruled the attorney general's opinion, if the money was deposited in other statutorily created funds before that decision, that they would not have to be restored. MR. BALDWIN said that it would have to be restored, but he agreed with Mr. Stastny that the reserve fund created by HB 157 would be under the legislature's complete control and could be appropriated for any purpose, including being returned to the constitutional budget reserve fund if necessary. He said the department would defend its opinion vigorously. Number 585 REP. VEZEY said he had been disappointed by supreme court action before. He asked whether the state would have to expend general funds to reimburse school districts if they should issue bonds and begin building schools under the provisions of HB 156 and HB 157, but then later saw the supreme court overturn the bills' spending plans. MR. BALDWIN said he could not answer the question without more information, but the state should not promise to reimburse municipalities' should they decide to issue bonds under the bills, and everyone should understand the inherent risk of potential litigation. TAPE 93-31, SIDE B Number 000 MR. BALDWIN said the department had hoped the legislature would have, in the interim before the current session, have come up with bills to interpret the constitution in a way that was agreeable to both the administration and the legislature, and such actions were in the offing. He said the department was trying to remove some of the doubt that is dependant upon any possible litigation. Number 045 CLAUDIA DOUGLAS, PRESIDENT OF THE NATIONAL EDUCATION ASSOCIATION-ALASKA, testified in Juneau supporting HB 156 and HB 157. She referred to a position paper on the bills she had sent to committee members. MS. DOUGLAS said, "I just think it's a courageous step on the part of our governor and the administration. It's forward thinking in terms of children and the future of our state. It's a wonderful opportunity for this legislature to provide new opportunities for communities and children. It's interesting to me that the debate is not over so much whether these funds are needed. I mean, if you go -- a week ago I was in a school in Anchorage that was East High School where they have big buckets that's collecting water that's dripping from the ceilings. And you can go to communities in Anchorage and Fairbanks where you see portables that are hooked up on the side of buildings where kids are having to go from one part of the main building to a portable unit. You know, you look at small schools that have, for example, in Fairbanks, the, they don't really have a gymnasium, they have a multi-purpose room that has everything from the lunchroom program to any activities they have. "And so I guess I just have a real concern that I think that again we're going to be hung up on whether we're going to save money or somehow put it into a fund that maybe should be or shouldn't be, rather than looking at the real needs of children and communities of this state. And so I just ask all of you as representatives of our communities to seriously and thoughtfully look at ways we can get this money into our communities in a very, very, positive, forward-thinking, futuristic way of helping provide the best that we can give the kids in this state. "So, I know that it's a complex decision, and I just hope that you'll maybe be courageous and make that decision to put that money into some funds that are desperately needed in communities. Thank you." Number 090 REP. BUNDE said, "Thank you, Ms. Douglas. I can assure you that -- I'll assume the chair again, Rep. Davis has to leave -- as chair here I will be very courageous and put the money where it belongs, in the constitutional budget reserve. Having said that, let me assure you that I believe you, that all these school needs do exist. It's just that this money isn't available to meet them. We have to find the money somewhere else." Number 106 (Rep. Brice departed at 3:59 p.m.) DENNIS GREGORY, A TEACHER AND MEMBER OF NEA-ALASKA said, "My name is Dennis Gregory. I'm a teacher. I am a member of NEA-Alaska. I'm here not at taxpayers' expense, and I'm here on my own time. This is my spring break. It's a little bit hard to speak after the comments of the chairman. In our school district we have the same kind of bucket problems, in Wasilla High School, Wasilla Junior High School. We have a desperate need for new buildings. We're overcrowded. We have 60 percent of our buildings over capacity. We're in a position where we have portables in most of our buildings. I teach at one of the smaller buildings, and next year we will have portables. We face a real desperate need here. We have a possibility, an opening, an opportunity. And yet in the middle of public testimony, we hear from the chairman of this committee he will not allow it. Excusing my upset and concern about this, I think that's quite arrogant. It's been said that power corrupts and absolute power corrupts absolutely, and I think that's what's happened here, sir." CHAIR BUNDE responded, "If you would care for a response, I certainly would. I am a life-long teacher, and my wife is a life-long teacher. I understand the needs of education. I also understand that we don't solve the needs of education by having a one-time only, get-rich-quick scheme. And five or ten years down the road, when the state will have less money, how are you going to fund your bucket problem then?" Number 145 CHAIR BUNDE continued, "You see there may be a misconception about the constitutional budget reserve. I didn't create that. I read the constitution; I think we're hearing attorney opinions that are playing semantic games with us. And it says the money goes there. Then, if the majority of your legislators want that money spent on education, it takes a supermajority and we can do it. Have to pay it back, but we can do it. But, I would disagree with you. The power that you refer to comes from 9,000-plus registered voters that have told me, `Get state spending in line. Don't do another get-rich-quick scheme. Find a little pot of money, spend it and put off the day of reckoning to another day.' In my opinion, that money isn't available directly to education. It's certainly available to education or any other state cause that requires funding, with a majority vote from the legislature. Now, I'm sorry if you take personal offense. None was intended. I'm saying, let's not kid ourselves that we can spend ourselves out of the deficit that the state is facing. Obviously, one of the highest priorities for me is investing in education. I strongly ascribe to that notion that, if you think education is expensive, try ignorance. But I can't do it in good conscience on anything less than a fiscally-sound manner. Something that will cause us even greater problems some five or 10 years down the road is not a way to solve Alaska's educational problems. We need to fund education, no question about it. I see the portable, I see the maintenance problems. There isn't any ... I'll be happy to do it. However, I have to live by the constitution, as we all do, and that money isn't available directly to education." Number 182 REP. NICHOLIA said, "I would just like to state for the record that I do not agree with the chairman of the committee, that I feel that if you don't take care of the problems, the construction and the maintenance problems now, then 10 years and 20 years down the road, you're going to find a worse problem, and it's going to cost the state more money. And that is why I disagree with what you just said. Thank you." Number 200 CHARLIE CRANGLE, A TEACHER FROM SEWARD, testified in Juneau in support of HB 156 and HB 157, saying that if Chair Bunde believes the BP settlement is not available for school construction, then he should support increasing the instructional unit formula to $64,000 instead of $61,000. He said teachers were looking for an answer, and possibly were asking the legislature to do something unconstitutional. He predicted more social problems later if schools were not funded now, and said teachers would keep knocking on doors until something was done. (Rep. Brice returned at 4:07 p.m.) Number 234 CHAIR BUNDE informed all teachers listening that for each teacher seeking for more money, there were 10 other citizens saying that you cannot solve education problems by throwing money at them. He said there is a need of additional educational investment in Alaska, in addition to the current funding level. He stated that schools cost $3 million per day to run, and his mandate has been not to increase state spending. He asked teachers to tell him what other social program they would have the state cut, such as roads, prisons, or health services. He said he would even support more taxes if that was the will of his constituents. He said the state was approaching the point at which residents would have to pay for the services they want. Number 258 REP. B. DAVIS replied, "I believe that we all have the same concern here. We care about education. It depends, I guess, on what your train of thought is where we should get the money, and I think that should not be the concern right now. As the HESS Committee, we serve on this committee, even though we want to be fiscal conservatives and make sure that we do the right things. In the end, it's not this committee that's going to decide where the finances will come from. In the end, all bills that has this kind of note on it will go to the Finance Committee. They will then, in turn, decide if they think they should bring that to us or make the adjustments. I think what we need to be concentrating on right now, is this a valid bill? Do we need to look at this and say, `Yeah, our schools are falling apart and we need to come up with some money for construction. And where the money's going to come from is an issue that we will decide later.' I can't blame people for coming up saying, `Yeah, you got $630 million, or $680 million, and you ought to take that money and use it.' Because all our constituents are telling us that, not just educators, but other people are coming saying use it for other projects. But in the end, we have to decide if we're going to use that money from some of the savings that we have, or from the general funds money that comes in every year. But we don't have to decide that here and now. I think what we ought to be sticking to is, are these bills valid ...?" REP. B. DAVIS said that the need remained for school maintenance and construction, and that the need would increase in the future as state revenues declined. She encouraged committee members to return to the issue at a later time after having considered that the committee should deal with school construction needs, and not how to pay for them. She disputed that the state lacked the money, saying it was a matter of deciding where to take it from. She said not all the money from the BP settlement had to go to education, and she applauded the governor's effort to address the issue. She said the windfall income was a welcome surprise, and expressed the hope that the state would receive more. Number 312 CHAIR BUNDE thanked Rep. B. Davis for her opinion and said that some people believe that it is fiscally irresponsible to spend money they don't have. Number 317 REP. VEZEY said that if the legislature appropriated money unconstitutionally, it could face another issue similar to the mental health trust lands issue. Number 330 CHAIR BUNDE said, "I was particularly taken with your idea of once concrete's poured, what's the state going to do when they find out they spent the money illegally. And again, our focus here is not to decide on where that money goes. Certainly, I think I speak for the committee when we support and endorse funding of education in a prudent manner. No problem's ever solved by throwing money on it. But we also feel, speaking for myself, believe that education needs to be certainly a priority and well funded. It's not. Is there further testimony on this bill? I close public testimony. And for public information, it is not my intention to hear this bill again in the near future." CHAIR BUNDE ADJOURNED the meeting at 4:15 p.m.