Legislature(1995 - 1996)
03/09/1995 09:40 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE BILL NO. 70 An Act relating to the public school foundation program; and providing for an effective date. Co-chairman Halford directed that SB 70 be brought on for discussion. JERRY BURNETT, aide to Senator Phillips, came before committee. He explained that changes to the current foundation formula contained within SB 70 consist of: 1. A change in the instructional unit calculation for large elementary schools to help fund reduced class sizes. 2. More local effort from school districts with low millage rates for school support to increase taxpayer equity throughout the state. 3. Changes in funding levels for very small schools with less then 16 students to encourage consolidation or alternate service delivery. 4. Update of area cost differentials to more accurately reflect the cost of doing business in various regions of the state. 5. Minor changes in law to improve administration of the foundation formula. Mr. Burnett advised that the existing cost differential would be eliminated and a school price index would be established by region and reviewed every two years. Districts with less than 16 students would not have their own school. DUANE GUILEY, Director, School Finance, Dept. of Education, came before committee, voicing concern that the proposed bill represents a significant shift of revenue from rural to urban districts. [The remainder of the minutes reflect transcription from Tape SFC-95, #15, Side 1] End: SFC-95, #13, Side 1 Begin: SFC-95, #15, Side 1 Mr. Guiley asked that both the administration and districts be given time to review the school funding issue and bring forth recommendations for the next legislative session. Senator Phillips advised that he sponsored legislation, now in Senate HESS, for a task force to review school funding and provide recommendations next year. That option was rejected by Senate HESS. The Senator voiced his hope that the department would work with the legislature on the bill. He acknowledged that the bill is not ideal. It does, however, provide a "vehicle which all of us can look at and deal with the school foundation formula . . . because there are inequities in it right now." The intent is for everyone to sit down and find a way to modify the formula. Senator Sharp inquired concerning the number of districts that meet minimum enrollment of eight and the number of schools that would not meet the minimum were it not for inclusion of the teacher's children. Mr. Guiley said he had no statistics on that issue. Three facilities are currently operated with less than eight students. A fourth, the Beluga site on the Kenai Peninsula, has also been identified as being in its last year of operation. Mr. Guiley then advised that Meyers Chuck in the Southeast Islands District has five students. Elfin Cove, in the Chatham District, and the Telida School, in the Iditarod School District, both have six. An additional school has attendance of eight. The next size is ten. Regulations state that a school program may begin when there are eight students of elementary school age. That is defined as K-8. There is no discussion either in statutes or regulations "as to when an elementary or secondary program ends." The only statutory reference says that if a school district drops below eight students, the district board may declare itself to be inoperative for the year that there are less than eight students. There is no discussion of when a school program ends. Senator Sharp suggested that there is a "reverse incentive" for a school district to declare that a school should be closed. Mr. Guiley responded, "Certainly." The Senator asked that the department check into the number of enrolled students who are dependents of the school teacher. Senator Rieger voiced his understanding that in the above- cited schools, the funding community was started when there were eight students. Enrollment then dropped. Mr. Guiley responded affirmatively. Senator Rieger asked if there is a difference in definition between a funding community and a school. Mr. Guiley again answered affirmatively. He explained that the consequence of a funding community is that it establishes the minimal level of funding for a school or a group of schools. In some cases a funding community is many schools combined together. The largest example is Anchorage where over 65 school buildings are combined into one funding community. In very small sites, one or two school buildings make one funding community. The funding community establishes a floor, or minimum level of funding. The greatest amount of funding comes with the first increment of students. As students are added to the community, each subsequent student generates less money than the child before. Senator Rieger asked if the logic behind funding communities is that "a funding community equals the school." A minimum number of eight students is the point at which a substantial increment of money is needed because that is the point where the school physical plant begins to operate. Mr. Guiley concurred. He attested to fixed costs associated with establishment of a school building and programs. It costs less to add a student to an existing facility than to start up a new school. That is the basis of the floor level of funding for the funding community. In response to a subsequent question from Senator Rieger concerning how funding flows to a school once the minimal level of eight students is reached, Mr. Guiley explained that current statutes provide a minimal level of funding of two units for any funding community. A list of funding communities was produced by the Dept. of Education and distributed to all school districts. Districts had an opportunity for input into that list. The list has been modified, since that time, by individual requests from districts to establish additional funding communities. In some cases, it has been modified when a district has notified the department of intent to close a school and delete a funding community. If there is a request to establish a funding community, and, hypothetically, if that funding community only had one child, that one child would generate $122.0. If the same funding community was established with two children, the two children would generate the same $122.0. Children three, four, and five would also generate that same $122.0. There is no incremental funding until enrollment exceeds ten. The eleventh child would thus generate incremental money. In addition to the basic K-12 unit, any child with special needs would generate money either through gifted and talented or some other category of special education, vocational education, or bilingual education. Supplemental funding for vocational education is available for grades 9- 12. Bilingual is available for grades K-12. Special education covers preschool through 12. Those are supplemental units over and above the K-12 unit. Responding to a further question concerning how the funding would flow should the department not approve a funding community for the hypothetical child, Mr. Guiley explained that the child would be added to the largest funding community in the district and would generate money as if the child were being served at the larger funding community. The district could then serve the child through a correspondences program and any other itinerant service. If the parent chose to enroll the child in state centralized correspondence study, correspondence study would receive funding for the child, and the district would receive no funding. By statute, each school board in Alaska has the legal obligation to provide a grade-level-equivalent program to every child that resides within district boundaries. Senator Rieger asked if the department would approve a funding community for two schools of five students each. Mr. Guiley said that the schools would receive less funding if they combine rather than seek separate approval. The department looks at the following in determining funding communities: 1. Geographic boundaries 2. Students to be served 3. Proximity to other schools 4. Whether or not they are connected by road to other existing funding communities There is a traditional sense of an approximate 30-mile radius around a high school comprised of the funding community of all the elementary schools and secondary schools (whether they be middle or junior high schools) that feed into that high school. Senator Salo voiced her understanding that Anchorage is one funding community. Mr. Guiley explained that under current statutes the Anchorage School District consists of three funding communities: 1. Anchorage 2. Eagle river 3. Girdwood The Senator then asked if, under the current definition, the Anchorage area could consist of more than three funding communities. Mr. Guiley responded that existing statutes and regulations provide the commissioner of education with discretion in establishing additional funding communities. If Anchorage were to apply, and the commissioner approved, the answer is "Yes, they could be." Senator Salo then voiced her understanding that that could be accomplished if a high school and its feeder schools were considered as a funding community. Mr. Guiley concurred. Senator Zharoff asked what would happen to the buildings and facilities for the 35 schools with enrollments less than the minimum of 16 proposed in the subject bill. Mr. Guiley said that most of the buildings are operated under use agreements with the Dept. of Education. The agreement requires local school districts to "keep the building in safekeeping for, normally, one year." The local district would be required to insure, maintain and heat the facility for one year while the department determines whether or not to surplus the facility. Present statutes and regulations deal with surplusing procedures that involve the Dept. of Administration and in some cases the Dept. of Transportation and Public Facilities and Dept. of Natural Resources. It is possible that after the initial year the building would be surplused and used for other purposes. If, at a later date, there were enough students to again open a school, the state would be faced with the situation of no longer having a school in which to serve the children. Senator Zharoff noted the migrant nature of populations in some rural areas and voiced concern that the proposed bill has created trauma in rural areas. He stressed need for schooling in a formal educational setting as opposed to correspondence study. Senator Zharoff also raised concern over the fact that the state does not have a definition or policy "of what basic education is." Basic education in one area may not be the same in another. He noted specifically that many students graduating from high school must have a foreign language to get into a good college. A number of Alaskan schools do not offer foreign language programs. He then asked whether foreign language should be considered an element of basic education. Senator Phillips attested to problems with class size in urban schools. The proposed bill represents an attempt to lower the TPR. He said that while the legislation may not be perfect, it is a start. Discussion followed regarding enrollment at a logging camp school in the Southeast Islands District. Senator Phillips voiced his understanding that most, if not all, of the students are "from out of state." Mr. Guiley said that the foregoing statement would be correct "of many of the logging camps on Prince of Wales and Southeast Island REAA school district . . . ." In response to comments by Senator Sharp regarding district responsibility to maintain and insure school facilities for one year after closure, Mr. Guiley said that the department has no funding source to take over the building once it is transferred back to the state. Under current statutes, the state owns the facility. The cost of maintaining and insuring it would be added to the department budget. In the course of further discussion, Mr. Guiley advised of the existing hold harmless statute. In case of declining enrollment or decrease in the number of K-12 units, a district receives 75% of the revenue it would have received in the prior year. When a funding community is deleted from a school district, that normally puts the district in the situation of receiving hold harmless funds. Those funds allow for transition from an active school to closure. Senator Sharp voiced his understanding that the district could receive up to 75% for zero students once a school is closed. Mr. Guiley responded affirmatively. He further advised that the hold harmless statute provides 75% the first year, 50% the second year, 25% in year three, and zero for the fourth year. Closure thus involves phase out over a four-year period. Senator Rieger inquired concerning the rate at which instructional units are accumulated. Mr. Guiley explained that the table of values for a combined K-12 program allows two units for the first ten students. When enrollment moves above ten, the funding community receives 1/5 of a unit for each child above ten in the size range from 11 to 20. When enrollment moves beyond 20 to 21, each incremental child generates 1/8 of a unit for funding communities ranging from 21 to 60. As enrollment moves above 60, additional students generate 1/12 of a unit. Above 120 students, each additional child generates 1/15 of a unit. In each case, the minimal level of funding carries forward. Every funding community has the benefit of those first two units, if it is funded under the K-12 formula. Senator Rieger voiced his understanding that a funding community would receive two units at enrollment of 10, three units at 15, four at 20, and five at 28. Mr. Guiley concurred, adding that a funding community would receive nine units at 60. Those nine units carry forward to 121 when fourteen units would be received. Senator Rieger asked what would happen should the floor increase to sixteen. Mr. Guiley said that the bill does not change the table of instructional values. There would simply be no funding communities in the range of 1 to 10 or 11 through 15. When enrollment reaches 16, the funding community would receive two units and 1/5 of each unit for each child beyond 10. Co-chairman Frank asked if the hold harmless statute speaks to funding communities or decreases in district enrollment. Mr. Guiley said that it speaks to district decreases in K-12 units. As the number of K-12 units decreases by more than 10%, a district becomes eligible for hold harmless. The Co- chairman suggested that a district "would have to have no more than 20 units total . . . to achieve some money under the hold harmless . . . ." Mr. Guiley concurred. He explained that Sec. 5 of SB 70 reduces the current hold harmless requirement from 10% to 5%. The department has provided an analysis of which districts would fall under the new 5% threshold. As an example, Bristol Bay School District would lose a funding community under Sec. 4. The district would "get some hold harmless money under Sec. 5 by being decreased to the 5%." The district would lose $134.0 but would make back $78.0 on hold harmless. That would be phased out over a four-year period. Co-chairman Frank reiterated that hold harmless applies to district-wide units rather than funding communities. Mr. Guiley concurred. Senator Sharp voiced his understanding that if closure of a school of eight or ten students within a larger district did not amount to 5% reduction in enrollment, the district would not be held harmless from the expense of maintaining the structure. Mr. Guiley responded affirmatively. Under the current statute, the district would have to sustain a loss of more than 10% of its K-12 units. Under SB 70, the loss would only have to be 5%, and the loss would be applied district wide. In a district with generally increasing average daily membership, the loss of units associated with closure of a funding community would not generate hold harmless revenue. The district would have to cover expenses of maintaining and insuring the closed facility, for a year, out of the district operating budget. Senator Salo raised a question regarding circumstances at Ketchikan. Mr. Guiley explained that past discussion of hold harmless related to situations where there has been a substantial decline in enrollment, and the district needs time to phase out program offerings so that remaining students are not immediately impacted. That is the general purpose of hold harmless. It does not generally anticipate closure of physical school buildings. Referencing Sec. 2 of the bill, Senator Salo noted the broad change associated with instituting the school price index as a replacement for the area cost differential. She then noted that a school price index study was conducted some years ago, and she asked if the study remains valid. Mr. Guiley advised that work on the school price index "fell out of the work that was originally done on Alaska 2000 activities which began in November of '91." The committee began work in April of 1992 and worked on the price index for two years. The work was never completed nor endorsed universally because the end result suggested that some districts might lose money while others would gain. An attempt to reduce the study to legislation produced much opposition. At the present time, the department does not have a school price index available and ready. The proposed legislation provides a one-year period to develop the index. Remaining portions of the bill would be implemented the year before. In response to a question from Senator Phillips, Mr. Guiley said that the last update to the area cost differential (the current area cost differential that exists in statute) was done in 1988 by the McDowell Group. Prior to that, it was accomplished in 1983 and '84. Senator Phillips asked if the McDowell study was done in 1988 but effective in 1989. Mr. Guiley said that the McDowell update was never adopted by the legislature. The department continues to work from 1983-84 data. Co-chairman Frank called for additional questions on the legislation. None were forthcoming. He then directed that SB 70 be HELD in committee for further consideration. ADJOURNMENT The meeting was adjourned at approximately 11:00 a.m.