Legislature(2001 - 2002)
03/19/2002 08:05 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 400-PERMANENT FUND CONTRIBUTION FOR EDUCATION CHAIR COGHILL announced that the next order of business was HOUSE BILL NO. 400, "An Act relating to contributions from permanent fund dividends for municipal school districts and regional educational attendance areas; and providing for an effective date." Number 0595 BILL CHURCH, Staff to Representative Scott Ogan, Alaska State Legislature, testified on behalf of the Representative Ogan, the sponsor of HB 400. Mr. Church explained that HB 400 would allow [recipients] of the permanent fund dividend to contribute [a portion of] their dividend to their local school district or regional educational attendance area (REAA). Last year, the Anchorage Daily News published a letter to the editor from a Bethel high school junior who expressed the need for more money for school funding. This letter pointed out that students and teachers had worked together to accomplish different projects within the school district. Mr. Church specified that educating the children of Alaska is the responsibility of all adults in the state. However, some Alaskans pay nothing locally to support the education of their youth. This legislation would allow contributions by a simple check-off box on the permanent dividend fund application. MR. CHURCH informed the committee that a legislative attorney has indicated that contributions made exclusively for a public purpose are deductible as a charitable contribution on the federal income tax. Therefore, HB 400 provides a personal and tax deductible method by which to provide additional financial support to their local school districts. However, HB 400 doesn't intend for any of these additional monies to count against the local school district or REAA when the Department of Education and Early Development (EED) calculates entitlements under the foundation formula. Mr. Church specified that [the sponsor] envisioned these contributions being used for improvements, supplies, or programs for which sufficient funding hasn't been available. These additional funds shouldn't be used to pay the salaries and benefits of teachers or any other school employee. Number 0389 REPRESENTATIVE JAMES asked whether individuals can already contribute to [their local school district] without having it deducted from the permanent fund dividend check. MR. CHURCH replied that certainly one can give money to their local school district. However, he said he wasn't sure whether that would be tax deductible. He indicated that having the contribution come from the dividend check may not be as painful a contribution. REPRESENTATIVE JAMES pointed out that there is a long list of [groups] that would like to obtain money from the dividend. She expressed concern with any "playing around" with the earnings of the permanent dividend fund. Before "playing around" with the earnings of the permanent dividend fund, there should be a determination as to what the long-term dividend program will look like in order to guarantee individuals a dividend. MR. CHURCH said that HB 400 doesn't really have any impact on the permanent fund dividend fund itself. REPRESENTATIVE JAMES said, "It just seems overwhelming to me as to what might happen if we pass this." Number 0085 REPRESENTATIVE STEVENS pointed out that communities have caps with regard to what the community can contribute to education. He assumed that this cap is in existence in order to provide fair and equal education throughout the state. However, where would HB 400 fit in relation to the cap. If the contributions under HB 400 fall outside of the cap, wouldn't that fly in the face of equal education throughout the state. If the contributions under HB 400 fall within the cap, then every dollar the local community contributes would result in one dollar less from the state. MR. CHURCH answered that these contributions are intended to be outside the foundation formula. TAPE 02-29, SIDE A MR. CHURCH continued. He pointed out that [Bethel] is a community that raises money through gaming, while locally contributing nothing to education. All the money going towards educating students [in Bethel] is from the state. This is not an isolated situation. He deferred to an EED representative with regard to the number of districts that aren't receiving local funding. Number 0184 REPRESENTATIVE FATE turned to the fiscal note, which specifies a cost of $17 million. He asked if that cost would be offset by the savings to the state in those areas where all the funding in education is provided by the state. MR. CHURCH reiterated that these monies would be outside the foundation formula and thus wouldn't be considered. Therefore, there wouldn't be any "offsetting savings." EDDY JEANS, Manager, School Finance and Facilities Section, Education Support Services, Department of Education and Early Development, testified in opposition to HB 400. He explained that these funds would be outside the foundation formula and would be operational, discretionary, funds for the school districts. Furthermore, HB 400 would run the risk of jeopardizing the state's equalization test in the foundation program, which allows the state to consider $50 million in federal aide in the distribution formula. Mr. Jeans noted that no one knows how many people will take advantage of this program and how much money will go into what community. He echoed Representative James's earlier statement that individuals can already make personal contributions to their local schools. He characterized such personal contributions as minimal. Mr. Jeans emphasized that EED doesn't oppose increased funding for schools; "it's the mechanism in which the schools get these additional funds." "We believe that the appropriate way would be to put more money into the foundation program statewide," he said. Number 0513 REPRESENTATIVE JAMES asked if there are school districts in Alaska that don't receive PL874 funds [Title VIII - impact aid funds]. MR. JEANS answered that there are four or five such districts. He explained that PL874 funds are in lieu of property taxes [for] federal lands that are tax exempt. The federal government makes the property tax payment to the education agencies on behalf of the people who reside on those federal properties. In further response to Representative James, Mr. Jeans specified that those school districts that don't receive federal impact aide, PL874 funds, are small first class cities that are making a local contribution. Every school district has some contribution that is other than state aide. Number 0635 REPRESENTATIVE WILSON asked whether money raised for sports has to be counted [in the cap]. MR. JEANS specified that typically those funds are outside the cap, although for some school districts such funds are counted as local revenue and thus show up in the operating fund from where it's transferred to student activities. In further response to Representative Wilson, Mr. Jeans explained that funds raised for specific programs [that are outside] the operating program will be [funneled] to that specific program. However, a contribution as suggested in HB 400 doesn't target a specific program and thus the funds are discretionary. Therefore, the district has no choice but to place those funds in the operating fund until the district determines how to spend those funds. Number 0748 REPRESENTATIVE STEVENS requested that Mr. Jeans comment on how HB 400 could theoretically impact the cap. MR. JEANS said that he didn't view [the funds raised by] HB 400 as a local contribution that would be counted against the cap. This legislation would merely provide additional revenue, contributed as other local revenue, to the school operating fund and thus would be measured in the equity test. Currently, school districts generate some local revenues that aren't tax revenues; those go into the operating fund and are counted in the federal disparity test. Therefore, the 2 percent cushion allows for those variances across the state. However, with a program as proposed in HB 400 there is no knowledge as to how much money will go into any community. That influx of revenue could cause the state to fail the disparity test; and therefore the $50 million [in federal funds] couldn't be counted in the state's funding formula. MR. JEANS, in response to Chair Coghill, informed the committee that the equity test is run "after the fact." "If we fail the disparity [test], then this legislature cannot consider those federal dollars in the upcoming year, which will leave a $50 million gap that would have to be filled some place else," he specified. CHAIR COGHILL asked, "Is it an all or nothing [situation]?" Or, could one say that if HB 400 brings in $50 million, that it [replaces] the $50 million [lost in federal dollars]. MR. JEANS reiterated that if HB 400 brings in $50 million and causes the state to fail the disparity test, then the federal dollars can't be counted. He highlighted that this would lead to [questions] regarding equity between school districts, which would result in [litigation]. He explained that EED uses the federal disparity test as a measure of equity between school districts across the state, which helps keep [the state] out of court. CHAIR COGHILL said, "Without regard to local input?" MR. JEANS clarified that it does consider local input, which is where the local cap comes into play. Therefore, it's important that the legislature provide revenue to school districts via the foundation program because that money has been measured and counted in a particular way so that [the state] will always meet the federal equity test. Number 1000 REPRESENTATIVE JAMES recalled that last year this topic came up in regard to Tok, which was feeling the pressure to create a local government that it didn't want. The argument for making Tok create a local government was that Tok wasn't paying anything for its schools. [Residents of Tok] approached Representative James and told her they were willing to have part of their permanent fund go into the [foundation] formula as the community's local participation. However, there was a problem with regard to not being able to get that money [into the foundation formula]. She inquired as to the problem. MR. JEANS recalled the situation, and characterized the problem as a tracking issue with regard to what money goes to what school district. Furthermore, the foundation program would have to be amended so that there would be an offset in state revenue equal to the amount of contributions through the aforementioned mechanism. Mr. Jeans said, "If that was the way that this bill was written, I don't think I would be here opposing the bill because then that money is going into the pot of equalized revenues in which the state measures." However, additional revenue outside the formula causes equity problems. CHAIR COGHILL suggested that the [equity] issue be discussed with the sponsor. REPRESENTATIVE JAMES remarked that she found it problematic to provide carte blanche authority across the state and then have to specify which school districts [the money is going]. Although she recognized the [proposal in HB 400] to be complicated, she noted her interest in the proposal in order to determine if there is a way to do it. MR. JEANS said that although there are ways to do it, he cautioned the committee with regard to impact aid and whether it should be considered a local contribution. Mr. Jeans said that the simplest way to obtain the local contribution is through the incorporation of the areas in order that they may make a local contribution based on property values. Mr. Jeans explained that if the money was to go into the foundation program and offset state aide and thus was part of the overall state equalization program, then he would have a different response to HB 400. CHAIR COGHILL announced that HB 400 would be held. He also announced that he would approach the sponsor and discuss whether there is interest in moving in any other direction than what is currently in the legislation.
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