Legislature(1995 - 1996)
04/13/1996 02:55 PM 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. 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 mills. 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 problem. 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 enrollment. 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 formula. 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 ADM. 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 example. 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 effect. 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 education. 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 different. 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."