Legislature(2019 - 2020)BUTROVICH 205

03/19/2019 09:00 AM EDUCATION

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        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                                                              
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                                                              
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                                                              
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                                                              
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                                                              
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                                                              
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                                                              
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                                                              
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                                                              
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                                                              
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