Legislature(1995 - 1996)

04/13/1996 02:55 PM 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.  Senator Randy Phillips MOVED for adoption of  a                 
  work draft  CSSB 70  (9-LS0652\W, Ford,  4/12/96).   SENATOR                 
  ROBIN  TAYLOR  came  forward  to  speak  to the  bill.    He                 
  explained that an  earlier draft contained a  mandatory mill                 
  equivalency paid  by each  community for  its school  system                 
  before the  district received  state funding for  additional                 
  education needs.   The rate was  set at 5  mills.  That  has                 
  been  adjusted  to  4.5  mills.    In doing  that,  a  major                 
  percentage of communities statewide are "dropped off because                 
  they're all paying more than that."                                          
  The Senator  directed attention to  a spread sheet  (copy on                 
  file in the  original Senate Finance  Committee file for  SB
  70) and  cited Anchorage,  Fairbanks, Juneau,  and MatSu  as                 
  examples of areas that would receive increased funding while                 
  a  $9 million reduction in  state general funds is effected.                 
  This occurs due to a shifting of funds from communities that                 
  can readily afford to pay the full cost of eduction from the                 
  existing tax base.   Funds that, in the past, have flowed to                 
  these  communities would  no longer  be needed and  would be                 
  available  for distribution to  communities that  have taxed                 
  themselves over and  above the mill  rate, to provide  basic                 
  education.  The theory behind the legislation is  "share the                 
  pain equally across the state."                                              
  Senator  Taylor  next  referenced the  existing  cap  on the                 
  formula and noted that many tax-based communities are at cap                 
  and may exceed it this year.                                                 
  The work  draft formula is driven  by need to provide  for a                 
  final  solution  to the  problem of  equitable distribution.                 
  The draft formula  changes existing statutes and  brings the                 
  state into compliance with federal law.                                      
  A  further  provision deducts  100  percent of  the eligible                 
  federal impact aid from basic need in determining the amount                 
  of state aid.   Senator  Taylor referenced indications  from                 
  districts that 100 percent provides no incentive to complete                 
  paperwork for  PL 874  moneys.   He suggested  the committee                 
  might wish to "give  them a fudge factor of a couple percent                 
  just for filling out the paperwork."                                         
  Directing  attention  to  Section 3  of  the  draft, Senator                 
  Taylor explained that before the  state would be required to                 
  contribute educational costs to a community, the locality is                 
  mandated  to  contribute  the  4.5  mill  minimum.    If 4.5                 
  generates  more  moneys than  the  community is  spending on                 
  education,  the  excess   flows  to   the  state  fund   for                 
  distribution to  communities taxing themselves  at a  higher                 
  rate.  Communities are allowed to contribute up to 2.5 mills                 
  of   additional  local  support  above  the  mandatory  4.5.                 
  Contribution  beyond   the  mandatory   level  qualifies   a                 
  community to receive  supplemental or  excess moneys.   Many                 
  communities  are  now  taxing  over  6  mills.    Section  4                 
  establishes the  pool for excess funds generated  by the 4.5                 
  Section  5  changes  the  number  of  students  required  to                 
  establish a funding community from 8 to 10.                                  
  Section  6  reduces  the  "trigger"  on  the  hold  harmless                 
  provision   from  the   current  10   percent  decrease   in                 
  instructional unit to a 5 percent decrease.  That only comes                 
  into effect in situations of declining enrollments.                          
  Section 7 cleans up the  formula for determining unit count.                 
  It reflects the 8 to 10 student change made in Section 5.                    
  Section 8  contains a  single-site fix to  cure the  ongoing                 
  Section 10  removes gifted  and talented  children from  the                 
  special  education  funding formula.   Senator  Taylor cited                 
  abuses  of   the  formula  whereby  certain  districts  have                 
  distorted numbers to gain additional funds.  The new formula                 
  contains  a  limit of  4.5  percent of  a  school district's                 
  Section 11 relates  to bilingual education.   Senator Taylor                 
  cited abuses in this area as  well.  Reductions are included                 
  in   the   formula   established  for   provision   of   the                 
  instructional unit  count per bilingual  student.  Reduction                 
  is 50 percent.                                                               
  Section 14 changes the  date at which student  counts occur.                 
  The historic deadline  has been October  15.  That date  has                 
  been  moved to November 20.  Section 15 provides flexibility                 
  in allowing districts to determine when they wish to conduct                 
  the count (sometime between October 15 and November 20).                     
  Section 16 contains  a "mini-hold harmless"  provision which                 
  gives the commissioner discretion to allow a school district                 
  caught between Sections 14 and 15 to show good cause why the                 
  district should not be  adversely impacted by the  manner in                 
  which the count was conducted.                                               
  Section 17 allows for promulgation of regulations.                           
  Sections 18 and 19 provide effective dates.                                  
  Senator Taylor acknowledged that the proposed  bill reflects                 
  a legislative  mandate forcing localities to  prioritize and                 
  dedicate  a  portion  of the  tax  base  to  education.   It                 
  requires  every community to dedicate 4.5  mills.  The state                 
  will then "match the rest."  He further remarked:                            
       If 4.5 mills happens to  generate $40 some million                      
       dollars out of the North Slope, and they only need                      
       $15  or  $20  for  education,  then  those  poorer                      
       districts, in this state, that aren't that wealthy                      
       ought to have  the benefit of those  funds so that                      
       their kids will also receive a decent education.                        
  The  purpose  of the  legislation  is  to  avoid the  equity                 
  problem being forced upon Alaska by the federal government's                 
  Discussion  followed  between  Senator  Rieger  and  Senator                 
  Taylor concerning  how numbers set forth on the spread sheet                 
  were calculated and what they include.                                       
  Senator Rieger requested further explanation of  Section 16.                 
  Senator  Taylor said it  was included "only  for purposes of                 
  providing  a transition  for the  change in  time  period in                 
  which you  count students."   Senator Rieger noted  that his                 
  reading  of the language  indicates that  in any  given year                 
  (1999 was used as an example) a district could opt to report                 
  membership numbers from  the earlier  year (1998).   Senator                 
  Taylor concurred  in  that understanding,  saying  that  the                 
  district could "fall back to the  previous year, but only if                 
  you have good cause  for doing so."  Senator  Rieger advised                 
  that it amounts to a "100  percent hold harmless for a  year                 
  on top of the 5  percent hold harmless . . . .  elsewhere in                 
  the bill."  Senator Taylor deferred further comment to staff                 
  from the Dept. of Education.                                                 
  In response to  a request for  a summary of changes  between                 
  the current draft and earlier  versions of the bill, Senator                 
  Taylor noted:                                                                
       1.   A drop from a mandated 5 mill equivalency to 4.5.                  
       2.   The 50 percent reduction in bilingual                              
       3.   Establishment of 4.5 percent of total district ADM                 
  as the         amount eligible for gifted programs.                          
  Senator  Zharoff  asked how  the  legislation would  work in                 
  areas with no  tax base.   Senator Taylor  noted that  those                 
  areas are presently receiving  PL 874 moneys.   Those moneys                 
  are contributed by the federal government in lieu  of taxes.                 
  Under the  proposed bill, those  districts would  contribute                 
  "that full amount  of their  PL 874" moneys  as their  local                 
  contribution and  "still share  in exactly  the same  dollar                 
  revenues that they were getting before."  If a community has                 
  a tax base but elects not to  tax it, the proposed bill "may                 
  very well require them to impose a 4.5 percent tax."                         
  EDDY  JEANS,  Project Assistant,  School  Foundation, School                 
  Finance,  Dept.  of Education,  came  before committee.   He                 
  explained that  the proposed  formula  computes a  statewide                 
  average  assessed  value  per  student.     For  REAAs,  the                 
  statewide average has been adjusted by  2.5 mills.  That 2.5                 
  mills is then multiplied  by the ADM to determine  the state                 
  share to REAAs.   For a  city/borough district, there is  an                 
  additional  computation  whereby  the district's  individual                 
  assessed  value  per student  is  compared to  the statewide                 
  average.  That produces a proportion  that is applied to the                 
  statewide  average  per   student  and  multiplied  by   the                 
  district's  ADM to  determine the  local  share.   The state                 
  share  is computed based on  the statewide average times the                 
  Operation  of the  above  formulas  (per distributed  spread                 
  sheets)  was  discussed  using  both  communities  with  and                 
  without tax bases  as examples.  Further  review of existing                 
  district  funding compared  to  the  new  formula  followed.                 
  Senator Taylor noted  legislative need to address  area cost                 
  differentials in the future.                                                 
  Co-chairman Frank expressed concern regarding potential  for                 
  additional  state  expenditures  driven by  increased  local                 
  contributions.   Mr. Jeans said that would  not happen since                 
  the state share  is based  on the average  of the  statewide                 
  value per student.  Mr. Jeans directed attention to a spread                 
  sheet   dealing   with   local   effort   requirements   and                 
  supplemental equalization funding.  He voiced his reading of                 
  the bill to be that the  additional 2.5 mills above the  4.5                 
  is  required.   The  2.5  mills  is based  on  the statewide                 
  average.  Further discussion followed  using Anchorage as an                 
  In response to  a further  question from Co-chairman  Frank,                 
  Mr. Jeans explained  that the proposed bill  would result in                 
  two formulae  working together  within the  umbrella of  the                 
  foundation  formula.   One  reflects  basic  foundation  aid                 
  computed   on   instructional   units,   times   area   cost                 
  differential, times the  unit value  of 61.   From that  the                 
  state   would  subtract   4.5   mills  of   required   local                 
  contribution and 100 percent of  impact aid funds to  arrive                 
  at   the   basic  state   allocation.     The   supplemental                 
  equalization  formula  would then  be  applied  to determine                 
  additional  state  aid.     Co-chairman  Frank  voiced   his                 
  understanding   that   greater  contribution   by   a  local                 
  government would not  "cost the  state more on  a per  share                 
  basis."   Senator  Taylor  concurred in  that understanding,                 
  saying:  "A local government cannot  drive more money out of                 
  the  state  by spending  more."   Mr.  Jeans noted  that the                 
  existing formula cap of 23 percent  of basic need remains in                 
  Further review of  spread sheets followed using  numbers for                 
  the Juneau-Douglas School  District as an example.   Senator                 
  Taylor noted  that the bill  would result in  "a significant                 
  tax  reduction  for  almost  every  major community  in  the                 
  state."  The Governor's legislation "gives more money to the                 
  people who weren't taxing themselves."  The Senator stressed                 
  that  the proposed formula  change would  "take care  of the                 
  inequality problem for a lot of years to come . . . ."                       
  Co-chairman Frank noted general discussion  of the impact to                 
  the   state  treasury  resulting  from  application  of  the                 
  proposed bill  to the North  Slope.  He  referenced existing                 
  tax caps under state law and asked how they impact the North                 
  Slope  Borough  and oil  and  gas property  taxes.   Senator                 
  Taylor  said  discussions  indicated impact  of  "about  $29                 
  million over and above local effort right now."  Co-chairman                 
  Halford voiced his understanding that the North Slope is  at                 
  the cap and would have to cut its budget in half.                            
  Further discussion followed regarding  the statutory cap  as                 
  well as bonded indebtedness.  Senator Taylor remarked:                       
       Whatever percentage  of their  30 mills  that they  are                 
       currently dedicating to paying off  that huge bond debt                 
       they've  got  up there  . .  .  shouldn't qualify  as a                 
       portion of the total  30 mill cap so as to prevent them                 
       from  having  the   revenues  to  pay  for   their  own                 
  Additional discussion of North Slope taxes and state oil and                 
  gas taxes followed.                                                          
  END:      SFC-96, #78, Side 1                                                
  BEGIN:    SFC-96, #78, Side 2                                                
  Co-chairman  Halford  quoted  from  a  May, 1995,  Dept.  of                 
  Revenue analysis of the 5 mill version of the bill:                          
       The state revenue loss based on 43.56 (the  offset) for                 
       the  North Slope Borough  would have  been $34,321,249.                 
       However,  the  Borough  is  already   at  the  30  mill                 
       limitation  provided  for  in  Title   29.    Since  no                 
       additional  property  tax  revenue  is  available,  the                 
       Borough operating budget  must be  reduced over 50%  to                 
       cover the additional educational funding.                               
  [The foregoing  analysis was  set forth  on a  May 3,  1995,                 
  fiscal note for SB 70 from the Dept. of Revenue.]                            
  Discussion  of the  differential  between  mills applied  to                 
  bonded   indebtedness   and  general   operations  followed.                 
  Senator Taylor again questioned whether  the North Slope was                 
  utilizing  a majority  of its tax  revenues to  repay bonded                 
  indebtedness.  Co-chairman Halford stressed  that the cap is                 
  complicated,  and  there may  be  other considerations.   He                 
  suggested  that  the  "cap  may  only  be  the  cap  in  the                 
  deductibility  against   the  statewide  ad   valorem  tax."                 
  Senator  Taylor remarked that  if impact on  the North Slope                 
  would  be  as   dramatic  as  indicated,  perhaps   phase-in                 
  provisions would be necessary.                                               
  Additional discussion  of tax applications within  the North                 
  Slope Borough followed.                                                      
  A  comparison  of  funding  under  current  law  versus  the                 
  proposed bill followed using Pelican as an example.                          
  Senator Zharoff next inquired concerning changes  in funding                 
  for bilingual programs.   Mr. Jeans said  the department had                 
  not  yet  had  an  opportunity  to  run numbers.    He  then                 
  instructed members regarding how computations would be made.                 
  Mr. Jeans  noted that it appears rural districts would lose,                 
  and urban districts  would gain, under the  proposed change.                 
  He acknowledged  that he  would not  be sure  of that  until                 
  calculations are made.  Senator Zharoff asked if  the intent                 
  was to "get  away from bilingual as  you get further up  the                 
  grades."  Mr.  Jeans voiced his  understanding of intent  to                 
  not reward districts  for classifying "children in  a higher                 
  weight  category."    A  uniform  funding  level  should  be                 
  provided for all bilingual students.                                         
  Co-chairman  Halford again referenced  the tax  situation in                 
  the North Slope Borough.  He advised of a formula based on a                 
  limitation on assessment.  There is  no limitation on tax as                 
  it applies to  debt service.  The borough  budget (including                 
  debt   service)  for   9,000   to   12,000   people   totals                 
  approximately  $225  million.   Of  that, $165.6  million is                 
  slated for debt service.                                                     
  Senator  Zharoff  asked how  the  proposed bill  compares to                 
  state  board  of   education  efforts  to   restructure  the                 
  foundation formula.  JAMES ELLIOTT,  Acting Director, School                 
  Finance,  Dept.  of  Education,  noted  that the  board  has                 
  considered quotas on  "some of  the categorical weights"  as                 
  well as  a "block  plan."   The proposed  bill is  radically                 
  Senator Zharoff asked if the  area differential would remain                 
  applicable  under  the  proposed  draft.     Senator  Taylor                 
  responded that the bill does not deal with the differential.                 
  It is a separate matter.                                                     
  Co-chairman Frank  asked if  the bill  solves the  disparity                 
  problem.    Mr.  Jeans  remarked  that  the  draft  enhances                 
  district ability to contribute local revenue by the increase                 
  from  4  to  4.5.    If districts  now  at  cap  continue to                 
  increase, that  may cause a problem is  disparity.  However,                 
  the  supplemental  equalization provides  additional revenue                 
  outside the  instructional units.   That  will increase  the                 
  unit value and may offset disparity.                                         
  Senator  Rieger  MOVED  for  deletion  of  Section  16  (the                 
  transitional section  involving the  prior-year count)  from                 
  the draft.   He  referenced discussion  indicating that  the                 
  section essentially provides  a second hold harmless  on top                 
  of the 5  percent hold harmless  within Section 6.   Senator                 
  Zharoff  OBJECTED,  advising  that he  was  unsure  what the                 
  impact of removal might be. Co-chairman Halford called for a                 
  show of hands.   The MOTION CARRIED on a vote of 5 to 1, and                 
  Section 16 was DELETED.                                                      
  Senator  Phillips  MOVED  that  CSSB   70  (Fin)  pass  from                 
  committee.    Senator  Zharoff  OBJECTED.    Senator  Donley                 
  advised that  he  wished to  offer several  amendments.   He                 
  explained  that the  first relates  to pupil  transportation                 
  while the  second relates  to unhoused  students.   He  then                 
  formally MOVED for  adoption of  the AMENDMENT dealing  with                 
  transportation.  Co-chairman  Halford called  for a show  of                 
  hands.  The AMENDMENT was ADOPTED on a vote of 4 to 3.  (Co-                 
  chairman Frank and Senators Sharp and Zharoff were opposed.)                 
  Senator  Donley  then  MOVED for  adoption  of  an AMENDMENT                 
  relating  to  assessment of  unhoused  students in  portable                 
  units.  The  intent is that  the department not count  these                 
  students as  housed when  it makes  it  assessment of  where                 
  construction  needs to occur.   Co-chairman Halford inquired                 
  regarding floor discussion of  the 10,000 limit.   He voiced                 
  need to count unhoused students in all locations, regardless                 
  of the  size of  the district,  and noted  a preference  for                 
  removal of  the 10,000  floor.   Senator Phillips  suggested                 
  that "and the district has a population greater than 10,000"                 
  be removed from  the amendment.  Co-chairman  Halford raised                 
  concern that the  word "temporary" may  become a major  term                 
  within regulatory  definition and suggested  that "temporary                 
  relocatable facilities"  might  be  more  direct.    Senator                 
  Donley  formally  MOVED to  insert "relocatable"  and delete                 
  language  relating  to  district  populations  greater  than                 
  10,000 so  that  underlined language  within  the  amendment                 
  would read:                                                                  
       for  purposes   of  this  subparagraph,   students  are                 
       considered  unhoused if  the students attend  school in                 
       temporary relocatable facilities;                                       
  Co-chairman  Halford called for  objections to the AMENDMENT                 
  to  the AMENDMENT.    No objection  having been  raised, the                 
  AMENDMENT to the AMENDMENT was ADOPTED.  Co-chairman Halford                 
  next  called  for  a  show  of  hands  on  adoption  of  the                 
  AMENDMENT.  The AMENDMENT was ADOPTED on a unanimous vote of                 
  7 to 0.                                                                      
  Senator Randy  Phillips renewed  his MOTION  for passage  of                 
  CSSB 70 (Fin).  Senator Zharoff again raised OBJECTION.  Co-                 
  chairman Halford called  for a  show of hands,  and CSSB  70                 
  (FIN) was  REPORTED OUT of  committee with two  fiscal notes                 
  from the  Dept.  of Education  (a  $29,266.5 note  for  K-12                 
  foundation and a  $1,992.0 note  for pupil  transportation).                 
  Co-chairman Halford and Senators Donley, Phillips, and Sharp                 
  signed the committee report with a "do pass" recommendation.                 
  Co-chairman   Frank   and   Senator    Rieger   signed   "no                 
  recommendation."  Senator Zharoff signed "do not pass."                      

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