Legislature(2019 - 2020)BUTROVICH 205
03/19/2019 09:00 AM Senate EDUCATION
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| Audio | Topic |
|---|---|
| Start | |
| SB74 | |
| SB64 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 74 | TELECONFERENCED | |
| *+ | SB 64 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 64-REPEAL STATE DEBT REIMBURSE. FOR SCHOOLS
9:45:22 AM
CHAIR STEVENS announced the consideration of SB 64.
9:45:47 AM
ELWIN BLACKWELL, School Finance Manager, Department of Education
and Early Development (DEED), Juneau, Alaska, explained that SB
64 repeals the school debt reimbursement program under AS
14.11.100, which currently reimburses 60 to 90 percent of
eligible school construction debt issued by municipalities. SB
64 also seeks some adjustments to AS 14.11.025 that governs the
calculation for regional educational attendance area (REAA) and
small municipal grant fund for school construction projects in
the REAAs and small municipal school districts. The calculation
in .025 is based on the annual debt reimbursement that the
department makes to municipalities. Eliminating the school debt
reimbursement statute requires initiating a mechanism to run the
calculation to come up with an appropriation amount. SB 64
provides a mechanism to continue to run the calculation and
maintains the payment schedules for the bonds that are currently
being reimbursed and the annual debt service that would normally
have been reimbursed under this program before it was repealed.
Those dollar amounts would be used to calculate the
appropriation amount for the REAA fund.
MR. BLACKWELL said the other provision in the bill would change
the name of the bond reimbursement and grant review committee to
the grant review committee. SB 64 would also remove the
committee's scope of reviewing debt reimbursement and other debt
projects and add new scope to develop criteria dealing with
multipurpose function and designs for schools when possible. The
bill also provides some conforming language to other statutes
associated with the removal of this program.
CHAIR STEVENS asked what the consequences of the bill would be.
MR. BLACKWELL replied that municipalities would be responsible
for the full amount of debt for bond payments. Currently,
municipalities make their debt service payments annually and
then request reimbursement from DEED. DEED reimburses from 60 to
90 percent based on the percentage the municipality falls under
in the statute. If SB 64 were to pass, municipalities would
still make their debt service payments, but without any
reimbursement from the state.
CHAIR STEVENS observed that the new administration keeps saying
no new taxes, but this simply passes taxes on to local
communities. He asked if that is true.
9:50:50 AM
MIKE BARNHILL, Policy Director, Office of Management and Budget,
Juneau, Alaska, stated that, without question, SB 64 functions
as a cost-shift to municipalities. In terms of no new taxes, he
said each of the bonds issued by the 19 cities and boroughs at
issue were general obligation bonds of those entities. He
offered his understanding that the ordinance that was put before
the voters specifically identified the debt as the
responsibility of property taxpayers of that jurisdiction and
that state school debt reimbursement was subject to
appropriation each year. The consequence of the state not
appropriating in a particular year was identified in the ballot
proposition.
He read the language from an Anchorage ballot proposition in
2012 that was put before the voters:
Without state reimbursement for debt service, voter
approval of this bond proposition authorizes for each
$100,000 of assessed real and personal property value
based on the estimated 2012 assessed valuation, an
annual increase in taxes of approximately $14.67 to
retire the proposed bonds. The debt will be paid from
real and personal property taxes levied collected
area-wide in Anchorage. Anchorage will also pledge its
full faith and credit for payment of the debt.
MR. BARNHILL said the administration's view is that the voters
were advised of the consequence of the state not appropriating
for school debt reimbursement. He pointed out that this is not
the first time a proposal has been put before the legislature to
reduce school debt reimbursement, but it is the first time the
proposal is to repeal 100 percent of the school debt
reimbursement. He said he understands that the legislature
reduced school debt reimbursement in 1983, 1986 through 1991,
and Governor Walker vetoed a portion of the program in 2016. He
described the magnitude of SB 64 as unprecedented, but not the
general idea.
MR. BARNHILL said OMB has calculated the impact to each
municipality and it is available on a spreadsheet. He agreed
that this is a difficult and potentially costly issue for
municipalities, cities, and boroughs, but reminded the committee
that the voters were notified each time a bond was issued. He
acknowledged that it creates a difficult situation because
municipalities must decide whether to increase taxes, cut
services, or some measure of both.
CHAIR STEVENS said the committee would get to the issue of the
impacts after the members had an opportunity to ask questions.
9:54:22 AM
SENATOR BIRCH thanked Mr. Barnhill for acknowledging that SB 64
does not save money. Rather, it simply shifts payment
liabilities to municipalities. He summarized the Molly Hootch
Case [Tobeluk v. Lind] and said his view is that the state has
the responsibility to educate all Alaska children and should pay
100 percent of the cost of education. He said participation in
the school debt reimbursement program has perhaps resulted in
over-construction in Anchorage and Fairbanks but he questions
how repealing the entire program will impact rural communities
where the legislature is seated as the assembly for the
unorganized borough. He said he looks at this as an equity
issue.
MR. BARNHILL replied that with some exceptions, most states
split the responsibility of supporting public education
relatively equally between locals and the state. In terms of
support of school construction in REAAs, SB 64 attempts to not
impact that at all. That grant fund remains intact and the
formula for granting out of the grant fund remains intact. The
bill attempts to preserve the status quo of the Molly Hootch
Case as well as Kasayulie v. State of Alaska.
9:57:18 AM
SENATOR COSTELLO asked how the bill will affect the cost to
repair and improve Gruening Middle School and Eagle River
Elementary School that were affected by the earthquake.
MR. BARNHILL replied appropriations for disaster relief are a
separate vehicle, but he did not know the extent of those funds
that will go to those schools. He offered to follow up with the
information.
CHAIR STEVENS asked him to send the information to his office
for distribution to the members.
SENATOR COSTELLO asked if any analysis had been done to
understand how this might affect future bonds that come before
voters.
MR. BARNHILL replied that there is a five-year moratorium on
school debt reimbursement until FY2021 and SB 64 proposes to
repeal that as well.
SENATOR COSTELLO asked if there was any discussion when the bill
was crafted about paying off existing debt before eliminating
the program.
MR. BARNHILL answered that he did not have a specific
recollection of that scenario.
SENATOR COSTELLO said she appreciates that he read the verbiage
included in the proposition that was before Anchorage voters,
but that is just a caveat that it is the power of the
legislature to appropriate and one legislature cannot bind
future legislatures. She asked if the impact of the bill might
affect voter behavior regarding funding school projects going
forward.
MR. BARNHILL answered that unquestionably this will impact voter
thinking about funding school construction going forward. From a
policy perspective, one consequence that voters should consider
is the various ways to support education--do they construct
schools, do they rent space in existing buildings, do they
construct multipurpose facilities that will reduce overall costs
to communities. A potentially good consequence is that
municipalities, the state, and voters will become more creative
in how they expend limited dollars to support educational
programs and construction.
10:01:45 AM
SENATOR BEGICH said he would like to think that after 200 years
of democracy, the framers of the Alaska constitution figured out
how to do it right as opposed to having education funded at the
local level. He said Senator Birch called it; it is
fundamentally the state's responsibility and the legislature's
responsibility to be the school board for the unorganized
borough.
He described the legislation that Senator Hoffman introduced in
2010 after Kasayulie that provides a stepdown mechanism based on
the amount of debt reimbursement that eventually runs out. He
asked if the mechanism provides a continued process for serving
and making up the $2 billion deficit in rural schools.
MR. BARNHILL confirmed that over time the amount of debt
reimbursement will decrease and the formula for making grants to
areas in the unorganized borough will also decrease. He said the
longest term for bonds impacted by the bill is 20 years. Some
mature earlier. He said the question of maintaining the equity
that the Kasayulie case calls for is valid and should be
revisited in the short to medium term.
SENATOR BEGICH said the issue does need to be revisited to keep
from being in a pre-Kasayulie situation with no funding
mechanism for rural schools. The court decision was quite clear
that the legislature used an arbitrary process for funding
schools that favored urban areas. That presents significant
constitutional issues with what is being proposed.
He referenced the caveat Mr. Barnhill read as part of the
Anchorage ballot proposition and said he would encourage the
governor to do the same with the oil and gas tax credits and
others that all carry caveats. He asked how the legislature is
to determine that the priority is that residents of the state of
Alaska who use school services merit less consideration than
those who sign contracts with the oil industry. He asked how it
is that state has made the decision paying back that billion-
dollar commitment but doesn't intend to continue paying back the
school debt reimbursement commitment.
MR. BARNHILL replied it is a difficult balance to prioritize the
funding the state has committed to in the past decades now that
its savings accounts are exhausted. The question is which to pay
part of and which to pay none of. He said with respect to the
oil and gas tax credits, the state began to reshape that balance
a few years ago. Instead of paying off those credits in full the
year they were presented, the state paid the statutory amount
under the interpretation by the Department of Revenue. The
governor has proposed to again pay a portion of the credits,
pending resolution of litigation to issue debt to do that. In
this case, the voters in municipalities agreed to pay for the
school debt reimbursement obligation if the state didn't
reimburse. He said it makes sense to send this obligation back
to the voters because they agreed to it.
SENATOR BEGICH said that argument would apply to virtually any
contract entered into by the state where there is not a "shall"
but a "may" clause. It would apply to a billion dollars of [oil
and gas tax] credits as well. He said it's a matter of
priorities and he wanted to be sure he understood where this
administration's priorities are.
10:08:07 AM
SENATOR HUGHES asked what the amount of the cost shift is to
communities and which communities are hit the hardest. She noted
the fiscal note is zero because there is no cost to the state.
MR. BARNHILL said this year the appropriation for school debt
reimbursement was $100 million. A portion was funded with
unrestricted general funds and a smaller portion was funded by
the higher education fund. In FY2020, $100 million is cost
shifted to the 19 municipalities that have issued this debt. The
highest dollar amount for FY2020 is $41 million for the
Municipality of Anchorage and the second highest is the Mat-Su
Borough for about $18.4 million. He said he could either read
the rest of the list or provide it to the committee.
CHAIR STEVENS asked him to give the list the committee aide who
would distribute it to the committee members.
SENATOR HUGHES pointed out that the ratio is worse for making up
that cost in her area because Mat-Su has a smaller population.
She referenced Senator Birch's comment about equity and said it
will be a hard rub for the people in her area to pick up 100
percent when 100 percent of the cost for construction will be
picked up by the state in other regions. She asked if the review
committee, which has the added duty to review construction to
ensure more efficient designs, would have oversight and a say in
construction in communities that receive no reimbursement. She
questioned whether the state should have a say about school
construction in those communities are picking up 100 percent of
the cost.
MR. BARNHILL said the bill identifies this committee as purely a
grant committee for the REAA grant fund and its duties regarding
the school grants construction fund are eliminated.
MR. BLACKWELL clarified that the school construction and major
maintenance grant fund is a funding mechanism for both
municipalities and REAAs. That list is presented to the
legislature. In the past DEED has utilized that list to fund
projects specifically in REAAs and small school districts. There
is a participating share for all these projects. For the REAAS
it is a two percent participating share. No one gets a 100
percent at this point, but it is close.
SENATOR HUGHES said if the cost shift is $100 million this year,
what is total cost over time.
MR. BARNHILL answered that the total nominal dollar value of the
debt service (not inflation adjusted) is $904.8 million spread
over time ranging from one year for Unalaska up to 20 years for
Ketchikan and Anchorage.
SENATOR HUGHES said this has great impact for Mat-Su now and
going forward because the Mat-Su School District is building
about one school a year to accommodate the rapid growth in the
area.
10:14:00 AM
CHAIR STEVENS opened public testimony.
10:14:12 AM
DEENA BISHOP, Ph.D., Superintendent, Anchorage School District,
Anchorage, Alaska, opposed SB 64. She said she supports the
legislatively-approved school bond debt reimbursement to school
districts through the state. In the past, school districts
incurred school bond debt in accordance with the state's
contractual agreement in place at the time the bonds were sold.
That agreement between the school districts and state and
approved by voters was done in good faith. While the community
of Anchorage has historically voted regularly to sell school
bonds to fund capital improvements, their vote has been
contingent on a portion of the bond cost being reimbursed by the
state of Alaska. Anchorage voters are informed citizens who
assess the value of their investments. Evidence of this is that
Anchorage is one of the few local incorporated areas that has
continued to invest in construction projects after the repeal of
the state share four years ago when the law changed on future
debt reimbursement. The municipality transparently communicated
the local responsibility for its construction investment since
the legislation in 2015 stopped the portion of state aid. Over
the last three years, Anchorage bonds have passed. They have
kept the amount of bond debt retirement at the level of new
money invested to support the security and care of the school
buildings for all stakeholders.
DR. BISHOP said the municipality has not bonded for new
buildings; their capital projects are designed to upkeep over 86
buildings, many of which were built in the high growth years of
the 50s, 60s, and 70s. Anchorage voters are informed and take
care of their community's needs. While the municipality
continues to bond for projects, it has closed two schools within
the last three years and moved two programs from rented space.
SB 64 will remove trust in government and impact future
contracts and business in the state when new investment is
sought. The governor says that Alaska is open to business but
she does not believe this is so. Not paying contracts agreed
upon by the state does not solve state spending. It shifts the
debt to individual Alaskans. The present OMB director reports
that the state is solving its overspending and reducing expenses
with the new budget but it is reminiscent of Hans Christian
Andersen's tale, "The Emperor Has No Clothes." In this story it
was the children who said the emperor has no clothes. She said
Alaskans are not fooled either and would ask the state to follow
through on its commitments.
DR. BISHIOP said as the legislature undergoes the difficult task
of creating a budget to the meet the state's needs during a time
of shrinking revenues, she is compelled to share the impact on
the Anchorage School District and community. The Anchorage
School District anticipates losing $41 million in school bond
debt reimbursement from the state. This shifts $320 million of
voter-approved debt from the last 20 years to the municipality.
In 2018 the average mill rate in Anchorage was 16.06, yielding a
property tax rate of $1,606 for $100,000 of assessed value. If
the burden to repay the bonds is shifted solely to the
municipality, the average homeowner in Anchorage would
experience an increase in taxes of $437. This is an increase of
seven to eight percent of the total tax bill for an average
home. Costs of goods and services may become more expensive as
commercial property has a higher tax burden that would be passed
through to customers. These are not budget reductions, but
responsibility shifting. She concluded by saying that just
because the state can do something doesn't mean it should.
SENATOR BIRCH stated agreement with the foregoing testimony. He
asked her to speak to the multipurpose aspects of school
construction in Anchorage and how to manage school construction
to keep costs competitive. For example, does the school district
pay more than the going rate for a roofing project.
DR. BISHOP related that testimony at the district level was that
roof projects were seemingly out of market, but resurfacing
roofs includes seismic upgrades and that is needed in
Southcentral Alaska. The district has seven roofs on a bond
project right now and there is a community committee that
supports the district in regard to the expenses and projects
placed on the bonds. Department of Education and Early
Development (DEED) metrics and parameters for pricing bonds are
used the bonds are sold and put out to bid over a period of time
to keep the construction costs down and meet the market share.
In regard to the multipurpose use of schools, there are in-house
medical clinics in four high schools. The schools are rented out
evenings to the community. She said these are community schools
and their playgrounds are part of city's parks and recreation
services. She noted that with declining school enrollment one
school was closed in 2017 and another in 2019. Programs are also
moved as the district looks at efficiencies.
10:24:34 AM
NORM WOOTEN, Executive Director, Association of Alaska School
Boards, Juneau, Alaska, opposed SB 64. He said school districts
are affected as municipalities are hit with increased costs.
Municipalities have already been impacted by the suspension of
school debt reimbursement through 2021. He said he would not
that the point that the initiative language that voters approved
included the caveat about reimbursement. However, the state has
had a long history of sharing and paying for that and voters
expected that to continue. School districts are concerned that
as municipalities absorb that cost, they will be hard pressed to
continue funding for school districts under the foundation
formula beyond the required minimum contribution. Many of the
municipalities are approaching or at the cap in support of
education. He said he believes that will no longer be the case
should SB 64 become law. The education of children across the
state will be affected.
CHAIR STEVENS commented that the administration discussed how
other states operate, but he was only familiar with Oregon. He
said school districts in that state establish a tax but school
districts in Alaska do not have that ability.
MR. WOOTEN agreed; municipalities are the taxing authority for
school districts within the state of Alaska under the foundation
formula.
10:27:06 AM
NILS ANDREASSEN, Executive Director, Alaska Municipal League,
Juneau, Alaska, opposed SB 64. He said he was speaking on behalf
of the mayors of the Aleutians East Borough, City and Borough of
Juneau, City and Borough of Sitka, City and Borough of Wrangell,
City of Dillingham, City of Cordova, Haines Borough, Ketchikan
Gateway Borough, City of Sand Point, Mat-Su Borough, City of
Nome, Petersburg Borough, City of Unalaska, City of Valdez, and
the City of Hoonah have all agreed to this joint statement.
Over the past decades, 656,000 Alaskans in 15 of Alaska's 19
boroughs and six cities voted for new and improved schools. The
promise to voters was that the state would pick up 60 to 70
percent of the school bond debt and the taxpayers would pay the
balance. He acknowledged the caveat in the agreement that the
reimbursement was subject to appropriation, but there was no
reason to believe that this commitment would change. Years of
payments strengthened that understanding, he said.
MR. ANDREASSEN said the governor promised to restore trust in
government, but his first step is to break a promise the state
made to those voters, to those taxpayers, and to those local
governments. Alaska residents and municipalities made a decision
to support schools in good faith, faith that has been broken.
The message to Alaska voters and to taxpayers is that the state
cannot be a trusted partner and trust in government cannot go
beyond a two-year election cycle or an annual appropriation. It
is evident that the state is committed to balancing its budget.
Similarly, local governments have a responsibility for the
budget that they deliver to taxpayers. For those municipalities
with school bond debt, which will be $105 million this year,
those taxpayers will balance the state's budget. Not only is the
state proposing that today's bond debt not be paid, but an
entire repeal of that obligation will shift more than $900
million to local taxpayers. Balancing the state budget on the
backs of local governments cannot restore trust in government.
Voters and taxpayers will clearly feel that their trust has been
misplaced.
MR. ANDREASSEN said that state decision-making must take into
account how local governments respond as there is no common
response. Local governments are diverse across Alaska. Shifting
almost a billion dollars their way will be met with a different
approach across the state. Some of the options are
straightforward. Some have room to increase taxes, but the scale
of these shifts will put them up against the cap before their
obligations are met. Some can raise taxes outside the cap to
meet those debt obligations. Some will spend from reserves or
reduce services. In many areas this will require ab overhaul of
tax codes. Where the state preempts the collection of revenues,
that significantly impacts a municipality's ability to repay
these bonds. There are no easy or across-the-board solutions.
Taxpayers are less likely to approve increased taxes for bond
debt for new and improved schools. Options are limited by voter-
approved tax caps and cash reserves and tax bases. In some
communities where there is no property tax and the state
preempts the collection of fisheries taxes or petroleum property
taxes that they depend on, there are few alternatives. He asked
what happens when residents leave as an outcome of budget
reductions and the tax base further deteriorates, what happens
to credit rating when receipt of state funding was part of the
deal, and what are the legal ramifications for municipalities
and the state. The repeal of school bond debt reimbursement is
not singular. Municipalities face multiple impacts from the FY
20 proposals: reduced ability to collect taxes from some
sectors, loss of state-supported services, and increased
expectations to pick up the costs. The state must not renege on
its promises. The school debt reimbursement should be treated
like any other contract if they are to restore trust in
government. Following through on promises, especially when it
comes to schools, must be on the top of the list.
10:31:38 AM
ANDY RATLIFF, Director, Office of Management and Budget,
Anchorage School District, Anchorage, Alaska, opposed SB 64. He
wanted to echo Dr. Bishop's testimony about shifting the cost of
$41 million for this year onto the local Anchorage taxpayer. The
timing is such that not only will the taxpayers have to pick up
an additional $41 million, but due to the timing and the timing
of the Anchorage municipality tax collection, taxpayers will
have to pick up additional costs associated with issuing tax
anticipation notes or use their working capital, which will
result in a loss of flexibility to remediate earthquake damage
and loss of interest earnings. They do respectfully ask them to
look hard at this decision to shift costs to local taxpayers.
10:32:53 AM
BRITTANY SMART, Special Assistant to the Mayor, Fairbanks North
Star Borough Mayor's Office, Fairbanks, Alaska, opposed SB 64.
She said she was speaking for Mayor Bryce Ward in opposition to
SB 64. The state is constitutionally responsible for ensuring
that Alaska's youth receive an education in safe, productive
learning environments and facilities. The borough has a long
history of being a partner in providing quality education. The
community has supported the Fairbanks School District with local
contributions by supplementing the school district's budget and
sharing in school construction costs. The borough's estimated FY
20 contribution for school bond debt equates to 1.1 mills, which
represents about $9 million. They value their schools, teachers,
and investing in their youth, as shown by the repeated approval
of bond proposals. The generosity and commitment of the
Fairbanks community should not equate to an ability to fully
fund school construction. The elimination of school bond debt
reimbursement will have significant, long-term impacts to the
community. At a minimum, the local ability to supplement the
state's budget for the school district will likely be reduced or
eliminated to cover the additional cost. More worrisome is
whether the community will be able to fund the future capital
needs of the school district, further exacerbating the borough's
and state's ability to fund and execute much needed capital
projects. The mayor urges them to reject SB 64 and maintain the
state's commitment to schools.
10:34:34 AM
CYNNA GUBATAYAO, Finance Director, Ketchikan Gateway Borough,
Ketchikan, Alaska, opposed SB 64. She said Ketchikan's share of
the bond debt reimbursement is 30 percent. That is not
insignificant. The bond debt reimbursement is not a handout. It
is part of the way of the state delivers on its promise to
provide a system of education to all Alaskans. Borough residents
have skin in the game. Ketchikan taxes itself to pay for their
share of the bond debt reimbursement, school building insurance,
and major maintenance on all the buildings. That is entirely
separate from the required local and discretionary contribution.
The Ketchikan Gateway Borough is opposed to SB 64 and asks for
their help in resolving the issue.
10:35:35 AM
ALVIN OSTERBACK, Mayor, Aleutians East Borough, Sand Point,
Alaska, opposed SB 64. He said the Aleutians East Borough is
responsible for six communities with a population of 3,141
residents: Akutan, Cold Bay, False Pass, King Cove, Nelson
Lagoon, and Sand Point. On January 10, the borough passed a
resolution opposing SB 64. The debt obligation program to
construct and conduct school renovations is a large
responsibility. One of the main reasons the borough formed in
1987 was to have local control of schools. They are committed to
providing a quality education to young people. The Aleutians
East Borough is obligated to pay a minimum of $517,000 for
education. They have frequently paid much more than that because
they believe their children are the future of the region and the
state. They have taken on a share of school bond debt,
recognizing that the state would cover a portion of this. Since
1970 the state of Alaska has encouraged municipalities to bond
for major school maintenance projects by reimbursing
municipalities with bonding authority. The Aleutians Borough has
a small tax base to draw from, but always has done their share
in partnership with the state. The borough's school bond debt in
FY 20 is anticipated to be $654,700 with the state paying about
70 percent. Their total outstanding school bond debt is just
over $7.5 million. SB 64 would require them to pick up the
state's share, which will increase the borough's share annual
share by nearly half a million dollars. The changes outlined in
SB 64 would shift the burden to small municipal governments like
theirs. The packages of reductions proposed by the governor
would be devastating and threaten the viability of the Aleutians
East Borough. They ask them to leave the school bond debt
reimbursement program intact.
10:38:03 AM
DEBRA SCHNABEL, Manager, Haines Borough, Haines, Alaska, opposed
SB 64. She said 30 percent of their general fund goes to operate
schools. In Haines, the school and library are the facilities
and programs they are most proud of. They have a tax cap of 10
mills, which does not include the debt retirement. In addition
to the 10 mills tax cap, the debt retirement requires 1.25 mills
of property tax. The annual school debt reimbursement is $1.2
million, and the state reimburses 70 percent, which is $904,000
a year. If Haines were to assume that payment, it would be
another 4 mills. Seven more years of taxing the community at 14
mills would be devastating. They anticipate that it would be
impossible for many to continue to live in their community with
that high a levy of property taxes. She urged them to think
about the impact of people who would receive that property tax
bill and have to make decisions about where to live. In many
ways the entire budget proposal is asking Alaskans to consider
that living in Alaska may not part of their future. She
encouraged them to consider the impact of SB 64 on the people of
the state and reject it.
10:40:44 AM
SENATOR BEGICH said he wasn't sure if the public knew what
Article VII, Section 1, of the Alaska Constitution says. "The
legislature shall by general law establish and maintain a system
of public schools--not just education, but public schools--open
to all children of the State," he said. They should really be
aware during the testimony that the legislature has a
constitutional obligation to provide for schools and it rests
with the state, as Senator Birch mentioned, not municipalities.
SENATOR BIRCH said that the legislation includes references to
consideration of multipurpose function designs to reduce overall
facility costs for the community. He asked if she could speak
about the deliberative process in her community to decide to
engage in construction.
MS. SCHNABEL replied that the Haines borough was supporting
three separate buildings when they started discussing replacing
the middle school and determined that it would be more cost
effective to combine the primary, middle, and high school into
one facility. That was a very conscious decision on their part.
She was on the borough assembly at the time they were
considering this and the school debt reimbursement program was
part of the decision to go forward with the construction of the
school. The school building does not have additional space. She
is not sure what the governor is thinking with multipurpose. She
asked if he is thinking of combining a school building with
theaters or libraries. She doesn't know what multipurpose means.
Their facility is completely dedicated to education. It is used
for community education, for recreational purposes, for
community meetings, but it is primarily an education facility.
They are proud they were able to reduce the costs in the borough
by having one facility.
10:44:42 AM
LUCY NELSON, Mayor, Northwest Arctic Borough, Kotzebue, Alaska,
stated that the borough, which serves 11 communities, opposes SB
64. She reported that $18.7 million of the borough's $29.4
million bond debt was to be reimbursed through the schedule
currently in place and $10.6 million would be paid by the
borough. This does not include the $12.8 million general
obligation bond debt to construct the Kivalina school that the
borough has been told will not be reimbursed by the state. She
said the borough currently spends about 50 percent of its budget
for education, 30 percent for bond debt, and for the remainder
for the mandatory local contribution and rent. Eliminating the
bond debt program would have a drastic, negative impact on
borough finances. Essential borough services that help protect
the lives, health, and safety of residents would have to be
reduced or eliminated.
MAYOR NELSON emphasized that the state is responsible for
funding schools and made a prior commitment to reimburse a
portion of school bond debt. Local governments have relied on
that commitment in good faith and any change to that commitment
will shift a significant financial burden on to local
communities and their residents. The Northwest Arctic Borough is
therefore opposing SB 64, she said.
10:47:29 AM
MIKE COONS, representing self, Palmer, Alaska, stated that as a
taxpayer with no kids in school, he supports SB 64. He mentioned
population decreases in Anchorage and wondered how much is due
to the lack of jobs and the recession created by this
legislature and former governor. He suggested bringing back the
school tax and tax the people with kids in school, including for
the cost of the buildings. This would free senior citizens like
failing education system." In conclusion he said he is 100
percent behind the governor, his budget, and what he is doing.
10:52:07 AM
WALTER SAMPSON, Assembly Member, Northwest Arctic Borough, Board
of Directors, Alaska Municipal League, Kotzebue, Alaska, stated
that education is an integral part of the region, which means
infrastructure is critical to give students the best education
possible. He related that schools that were built in 1960s
deteriorated and students got sick from the rotting buildings.
In the early 1980s, Northwest Arctic Borough region started to
discuss ways to support education and the borough was ultimately
created in 1986. In the mid-90s, the borough started to look at
replacing the aging education infrastructure in communities
throughout the borough. The question of whether to bond for the
schools was put before the voters and they supported bonding up
to $100 million. Eight new schools were built and now they are
starting to deteriorate. He said the Red Dog Mine is the only
tax base in the region and opportunities for work are limited.
The borough continues to look for other ways to expand the tax
base so they can continue to support education. He said it is
sometimes easy for leaders to pass the buck but he believes the
state needs to take responsibility for education. He opined that
it is critically important to continue to work with the state,
but as a member of the borough assembly and as an AMS board
member, he does not support SB 64.
SENATOR BIRCH thanked him for his leadership and continued
engagement on this important issue.
10:58:28 AM
DAVID NEES, representing self, Anchorage, Alaska, reported that
the House Sustainable Education Task Force in 2014 recommended
ending the bond debt reimbursement program. The legislature did
place a moratorium on the program , but that has not slowed
people of Anchorage from incurring new bond debt. He opined that
if SB 64 were to pass, the legislature should pass legislation
to make whole the people who bought into this reimbursement.
Before bond debt reimbursement, the state sold bonds for school
construction. He noted that the cigarette tax is also a
dedicated tax that goes out, but unevenly. The boroughs do not
get as much of the funds as the students they house. He said
that tax could be increased and dedicated to the Bond Debt
Reimbursement Program payoff.
MR. NEES said that if the reimburse program is eliminated, it is
of primary importance to have a replacement component to ensure
that organized areas are not unfairly impacted because they
bought into the program. He pointed out that all the testifies
have said that they have to reconsider what they are doing. He
said a secondary barrier is that the Supreme Court looked at the
Ketchikan decision and said the required local contribution is
probably unconstitutional. He pointed out that if that is
removed from the funding bill, it will remove the caps on
municipalities and organized areas to tax citizens for their
schools. He noted that the solution in the 1970s was that the
state sold bonds and again emphasized the importance of a hold
harmless component in the debt reimbursement if there is no way
to collect the money to make the payments.
11:01:45 AM
JIM COLVER, representing self, Palmer, Alaska, quoted Robert
Service said that "a promise made is a debt unpaid." He said he
is hearing that education and public safety are the top
responsibilities of the state of Alaska. If SB 64 were to pass,
it would shift $200 million of debt to the Mat-Su borough, about
$18.4 million a year, which is equivalent to two mills. That
would represent a 20 percent increase in the base tax rate
before adding service areas. In total, that is about 16 to 17
mills, which would be a major increase. In 2011, when the
governor was the school board president, a large bond issue was
put before voters. Both the governor and school district
advocated for the $200 million bond package. That went before
voters as a 70 percent state reimbursement. Mayor Vern Halter,
who was then an assembly member, made sure the ballot language
said that under no circumstance would the bonds be sold if they
weren't eligible for 70 percent reimbursement. That was the
promise to voters and it needs to be upheld.
If the state wants to renege on the obligation, it should pay
the debt and start fresh. That would result in a $900 million
fiscal note. He said the Mat-Su Borough has a reserve fund
balance of about $25 million and the impact of SB 64 would be to
exhaust it in one year. From a policy perspective it doesn't
make sense to not support education because education is the
future of an increasingly knowledge-based economy.
11:04:53 AM
BRANDY WAGONER, representing self, Kodiak, Alaska, stated
opposition to SB 64. She said many people have realized that
school debt reimbursement cannot last forever, but no one is
ready for it to be cut to zero immediately. The Kodiak Island
Borough area-wide mill rate is 10.75. To recover from the loss
of school bond debt reimbursement just this year would increase
the mill rate to 14.51. It could possibly exhaust the fund
balance and the borough would not be prepared for any future
bonded debt projects. While the ballot language did say that the
balance would fall to the taxpayers if the school debt
reimbursement was not funded, the bond debt would not have been
proposed if the projects had not been approved for school bond
debt reimbursement. She said SB 64 is akin to rearranging the
deck chairs on the Titanic. She suggested looking at this policy
in the long term and adopting something in the middle to satisfy
short-term needs and keep the focus on the future. Everyone can
deal with a cut, but no one can deal nothing at all, she said.
11:07:01 AM
VIKKI JO KENNEDY, representing self, Kodiak, Alaska, said
education is important to the state but she supports SB 64. When
the state had money, spending was out of control and now that
the money is gone it is necessary to start somewhere to rein in
spending.
11:09:48 AM
GREG WEAVER, self, Wasilla, Alaska, said he supports the
governor's budget cuts such as SB 64. He opined that everyone
must strive for more efficiency in the state and conserve
current resources. He placed the onus for overspending on the
legislature and emphasized the need to stop blindly throwing
money at education. He expressed hope that the current budget
situation leads to a mass exodus from the state, leaving people
who want to be in Alaska and part of a thriving society. He
mentioned the ferry system as an example of spending he didn't
agree with. He compared the areas of the state to a fried egg.
Southeast represents the fringe of the white that burns first
whereas Southcentral represents the yolk which most people are
most concerned about. He asked legislators to consider what is
best for the state, not just individual districts. He encouraged
the state to take care of seniors, homeless kids, and disabled
veterans and to stop throwing money at vocational schools like
the one in Palmer.
11:14:18 AM
SENATOR COSTELLO said she had two clarifying questions for Mr.
Barnhill. One of the testifiers indicated that school bond debt
reimbursement is somehow filtered through the school foundation
formula and her understanding is that it is not.
MR. BARNHILL said his understanding is that school debt
reimbursement has no place in the foundation formula. Therefore,
any shift, like SB 64 proposes, of school debt responsibility
back to municipalities would not impact the voluntary cap under
the foundation formula.
SENATOR COSTELLO said Mayor Nelson from the Northwest Arctic
Borough testified that she is getting word that the state is not
reimbursing $12.8 million for the Kivalina school and
information in the packet indicates that the state is putting
the program on hold. She asked him to clarify the status of that
school and the program as a whole.
MR. BARNHILL deferred the question to DEED.
11:15:56 AM
HEIDI TESHNER, Director, Administrative Services Section,
Department of Education and Early Development (DEED), Juneau,
Alaska, said her understanding is that the $12 million is the
Northwest Arctic Borough's participating share of the bond debt
to build the Kivalina school. The state is responsible for the
balance. She offered to follow up with information about the
exact amount.
11:16:30 AM
CHAIR STEVENS asked her to provide that information to the
committee. He kept public testimony open and held SB 64 in
committee.