Legislature(1995 - 1996)

03/09/1995 09:40 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                 
            less then  16 students to  encourage consolidation                 
            or alternate service delivery.                                     
       4.   Update   of  area   cost  differentials   to  more                 
            reflect  the cost  of  doing  business in  various                 
            regions of the state.                                              
       5.   Minor  changes in law to improve administration of                 
            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                 
       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                 
  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                 
  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.                        
  The meeting was adjourned at approximately 11:00 a.m.                        

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