Legislature(1997 - 1998)
02/19/1997 09:03 AM Senate HES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 85 PUBLIC SCHOOL FUNDING/CHILD CARE GRANTS CHAIRMAN WILKEN introduced SB 85 as the next order of business before the committee. Number 177 RICK CROSS , Deputy Commissioner for the Department of Education, emphasized the following three points. Firstly, this formula does have a fiscal note requesting $12,800,000 in additional funds. These funds are requested in order to change and improve schools. The funding will not be utilized for inflation but for the incentive grant portion of the legislation. Mr. Cross noted that there will be a demonstration program regarding meeting higher standards. Generally, there are many examples of high quality education in Alaska; however, there is a lack of consistency from classroom to classroom. Standards and quality incentives attempt to provide a specified level for all students to reach. Secondly, SB 85 would eliminate unnecessary labeling of students. The bill proposes to change the current method of identifying special education, bilingual, bicultural and other students. Under the existing formula, districts are given instructional units based on the number of special education, bilingual, bicultural students identified. The more identified the more money the district receives, however Mr. Cross pointed out that under the current formula there is no requirement that money be spent on those programs or the children identified to generate the revenue. Therefore, a considerable disparity between districts regarding how many students are identified for such programs results. For example in one district, of the instructional units generated nine percent are special needs instructional units while another district has 33 percent identified as special needs instructional units. Mr. Cross stressed that such disparities cannot simply be explained by the student population or demographics alone rather some districts have been more aggressive in the identification of students. Over-identification and labelling of students is a concern and cannot continue. Over-identification is not right and hurts those districts that do not generate the additional revenue by over-identification. The department can determine that a district is over-identifying and will no longer receive approval of its programs which would result in less revenue, but that only solves half of the problem. Such action will not improve the programs in the districts that do not over-identify. Mr. Cross said that the solution is to recognize the cost for such programs not by unnecessarily labeling children. This needs to be addressed this session. Number 250 Thirdly, SB 85 would perform a statewide area cost differential study. The bill allocates funding per student rather than per instructional unit value basis as is the current practice. Mr. Cross believed that the area cost differential study in the bill is linked to the elimination of the instructional unit. The area cost differential study under SB 85 would be like no other previously done in Alaska. The study under SB 85 would take a new approach regarding the cost to educate a child and operate a school, not the cost of operating a district which is the current practice. The cost of operating a district must be justified with the impact on the classroom. Mr. Cross was pleased that in the testimony last week most everyone indicated the need for an area cost differential study. Mr. Cross acknowledged that an area cost differential study redistributes the wealth which results in winners and losers. EDDY JEANS , Manager of the Finance Section in the Department of Education, noted that the committee packet included copies of the flip charts that he would review.(See Attachment A) The flip charts begin on page 6. The new funding formula is named the Public School Funding Program. Mr. Jeans highlighted the main features of the Public School Funding Program under SB 85. He then reviewed the three levels of funding for this program. Under Level I funding - Base Student Allocation, Mr. Jeans explained that the intensive service allocation of $22,500 would serve the approximately 1,225 severely handicap students in the state. The cost of providing these students services is extremely high. With regard to the area cost differentials under Level I funding, there are seven under SB 85 while the current formula has 23 area cost differentials. The current differentials are assigned to a school district while SB 85 would assign the differentials to a funding community, a school. Mr. Jeans clarified that under SB 85, there would be a 3 mill required local effort the fist year. That required local effort would increase .25 mill each year for four years in order to reach the 4 mill requirement in the current law. Mr. Jeans reviewed the Level II funding - Supplemental Equalization, page 9. In the review of the hold harmless provision Mr. Jeans pointed out that the hold harmless provision would be phased out over a four year period. In the third year, the area cost differential study should be completed and implemented which would accelerate the decrease of the hold harmless. He reviewed the Level III funding - Incentive Grant. Level III would not require additional local contribution. Page 12 illustrates how the transition to the Public School Funding Program will occur. Mr. Jeans explained that the hold harmless decreases while the required local effort increases by .25 mill each year. That increase in funds is redirected to increase the per student allocation which maintains the state's share of the total funding. When the program is fully implemented the student allocation will be set in statute at $3,400 until the Legislature adjusts it. Mr. Jeans asked if there were any questions. Number 411 SENATOR LEMAN referred to page 6 of the packet when inquiring as to why SB 85 would eliminate Alaska's requirement to comply with the federal disparity test. EDDY JEANS explained that under the current foundation formula, the required local effort of 4 mills and 90 percent of the school district's impact aid is deducted from the basic need which determines the amount of state aid. Due to that adjustment for impact aid, Alaska must comply with the federal disparity test. The new formula does not adjust for federal dollars. SENATOR LEMAN asked why during the transition period the area cost differential increased when most evidence illustrates that area cost differentials are shrinking as transportation and communication systems improve. RICK CROSS specified that the chart utilized the seven area cost differentials and the range of 1.00 to 1.55. Mr. Cross acknowledged that there was no way of knowing whether the range was inappropriate, but it did suggest what the boundaries may be. For that reason, the hold harmless is so rigid in the first two years which negates the effect of the differentials until the study is completed. The study would determine the range of differentials as well as the number of differentials needed; the flexibility to change is necessary. Mr. Cross seemed to agree with Senator Leman's assessment that cost differentials have diminished, but the study will confirm or deny that suspicion. SENATOR LEMAN was unsure as to why the 1.55 was chosen instead of staying at the current level. This may create an expectation of a higher differential. RICK CROSS explained that the current differentials were used in order to move away from the district area cost differential and move towards a school/funding community area cost differential. Mr. Cross believed that on an overall statewide basis, the total effect of the range of costs has decreased; however in small, remote communities, the costs may remain quite high. Mr. Cross stated that the existing differentials were not used in order to indicate that a new study will be performed. Mr. Cross acknowledged Senator Leman's concern. Number 473 SENATOR LEMAN believed that Yakutat, Unalaska, and Chenega Bay were comparable communities although, there is disparity in their area cost differentials. RICK CROSS said that those communities were rounded to the closest current differentials with a few exceptions. SENATOR LEMAN commented that the differentials seemed to be determined on an areal basis. For example, almost all of Southwest Alaska was one differential. SENATOR GREEN asked if there would be a statewide responsibility for those students needing an intensive allocation of $100,000 per year. Would that be dealt with through waivers or would the district be responsible for that expense? EDDY JEANS said that SB 85 does not include a waiver provision for intensive allocation. The intensive allocation of $22,500 practically mirrors the intensive allocation under the current formula. Under the existing and proposed formula, the district would bear the burden over the $22,500. CHAIRMAN WILKEN asked if there was an estimated cost and a model for the area cost differential study. RICK CROSS pointed out that the fiscal note shows that slightly less than half a million dollars would be needed for the study. Mr. Cross believed that some information needed for the study would be available, but much of the information is not available and would require investigation. With regards to a model study, Mr. Cross noted that business often looks at the cost of manufacturing a product. There have been studies which reviewed the costs to operate schools as opposed to district or state costs of the operation of schools. Mr. Cross emphasized that Alaska is different and that should be recognized in this study. CHAIRMAN WILKEN noted that not everyone wants an area cost differential study. In response to Chairman Wilken, RICK CROSS said that a funding community is not the school in many parts of the state. In larger communities, the funding community is a K-12 group of students that would stay together. For example, Fairbanks is a funding community and North Pole is a funding community, but the Fairbanks North Star Borough School District is not a funding community. Mr. Cross agreed that a school district could be made up of many funding communities. For example, the Kenai Peninsula Borough School District has many funding communities with one differential for the entire district. Mr. Cross said having one differential for the Kenai District does not make sense when one reviews the cost of school operation in some of the remote communities. With regard to the PL874 funds, those funds are received by the district from the federal government. Under the existing formula, those funds were considered in determining how much state aid would be given to the district. Under SB 85, the money will continue to be received by the districts, but the money will not be used in determining how much state aid the districts will receive. The amount of PL874 money is relatively small in comparison to the nearly billion dollar program of education in Alaska. Under the existing formula, a small portion of the education budget, the PL874, drives the formula. Mr. Cross recognized that there will be some anomalies, but they are not serious. The information before the committee does not include the PL874 funds. This does allow districts to generate more money if the district chooses to do so. TAPE 97-14, SIDE B In response to Chairman Wilken, EDDY JEANS explained that the impact aid goes directly to the school district. Ninety percent of the impact aid is deducted in determining the state aid under the existing formula. Under SB 85, there is no adjustment for impact aid. Therefore, the spreadsheets are a side-by-side comparison of state aid under the existing formula and state aid under SB 85. Number 572 SENATOR GREEN noted that no federal laws or state laws regarding a district dealing with special needs students have been changed. In response to Senator Green, RICK CROSS agreed that SB 85 speaks to how money is distributed to districts not what services districts are to provide. SENATOR GREEN asked if there was any requirement to use a percentage of the money for the student that the money is being non-categorically designated. RICK CROSS said that there is no required allocation for the direction of funds in the existing state laws, regulations or under SB 85. Mr. Cross noted that the match requirement for Level III funding is an exception. EDDY JEANS continued with his review of the spreadsheets in the packet on page 13. (See Attachment A) The spreadsheet on page 13 illustrates for each community, the projected FY98 entitlements under existing law with the local budget for FY97 and the total for state and local funds. Page 14 illustrates the distribution under SB 85. Mr. Jeans pointed out that the districts who would be required to make an additional local contribution to schools are listed with accompanying amounts. The spreadsheet on page 15 compares the combined state and local funding under the current formula and the proposed formula which results in an increase in revenue of $13,144,425. Page 15 also compares the change in state aid under the current formula versus the proposed formula which totals $12,322,400. That number would be listed on the grants line of the fiscal note. Page 16 compares the current foundation formula with SB 36 and SB 85/HB 126. SENATOR GREEN inquired as to the reference that illustrated the increased mills that a city/borough district contributes on page 10 of the packet. EDDY JEANS clarified that was referring to a district's ability to qualify for the hold harmless provision. The statewide average of that is about 7.5 mills. Mr. Jeans continued with the side-by-side comparison on page 16. Number 420 In response to Senator Green, RICK CROSS did not know if other districts would be expected to participate at the same level as a district contributing in excess of the normal contribution. Currently, there are significant differences in local contributions. Mr. Cross recognized that some are concerned with lifting the cap due to the belief that some communities will generate more for their students than others and unfairnesses would result. Mr. Cross, as a former school administrator, did not believe that would occur; he believed there is a natural limit in place within local communities. SENATOR GREEN commented that she liked the elimination of the cap. RICK CROSS clarified that this formula would set the floor not the ceiling. CHAIRMAN WILKEN inquired as to how the 20 percent allocation for special needs students was derived in SB 85. RICK CROSS said that 20 percent is close to the current total effort on a statewide basis. SENATOR LEMAN asked if those numbers should be adjusted in order to take into account that some schools over-identify such students. RICK CROSS stated that there is no way of knowing what the true number would be. Further, this allocation method recognizes that in the cost it does not matter. SENATOR GREEN commented that a special education task force a few years ago found that 20-22 percent for special needs recurred regularly. RICK CROSS remembered that to be 14 percent which is a certain category of special education and 20 percent resulted when including everything. Mr. Cross recalled that Alaska's statewide averages are higher than the national averages, particularly in the area of special education. Mr. Cross was not sure if Alaska included other categories under that heading. In response to Senator Leman, RICK CROSS agreed that in Alaska the districts' range of special education students is 9-33 percent, but some smaller districts are higher than 33 percent. Under the current formula there are default units which allow a unit to operate such programs no matter how small the district which results in those smaller districts at levels higher than 33 percent. In response to Senator Ward, RICK CROSS explained that under SB 85 money is requested to perform a study in order to implement new area cost differentials in the third year of implementation. The implementation must be completed prior to the elimination of the hold harmless. Mr. Cross said that a Request For Proposal process would be utilized. The study would be done independently. Mr. Cross acknowledged that there have been many cost studies regarding wages or district-by-district. There has not been a study regarding the school's operating costs that has been implemented. CHAIRMAN WILKEN asked the committee to write down any questions remaining to be answered later so as to receive the testimony from those on the teleconference. Number 324 DICK SWARNER , Executive Director of Business Management with the Kenai Peninsula School District, informed the committee that he was a life long Alaskan who had been in public schools for 30 years. The Kenai is in serious financial trouble. Mr. Swarner believed that the Legislature needed to tackle the philosophical question regarding how to fund education. The Kenai is in the process of reducing its budget for the coming year below that of the current year. Next year's budget is projected to face of reduction of $1.3 million in revenue. The pending budget reduction has lead to an increase in the pupil teacher ratio, cut text book allocations, and negotiated a two-tier salary schedule with all employees for a 10 percent reduction. In Kenai the salary for a beginning teacher is $29,500 which with a Masters degree and 90 credit hours tops out at $50,400. The Kenai has also participated in a RIP. Mr. Swarner expressed concern with the area cost differential under SB 85. He discussed an example of how the area cost differential differences did not make sense and should be addressed during the study. Mr. Swarner agreed with an area cost differential study based upon the educational costs not the CPI. Under the current foundation formula, Kenai has been at the cap for the last nine years. Kenai is at the 7.44 mill. Mr. Swarner stated that a formula does need to take into account the taxable wealth of a district and Kenai would therefore expect to receive less money. Number 236 LARRY WIGET , Director of Government Relations for the Anchorage School District, stated that the Anchorage district supports a rewrite of the formula in a manner more equitable for the Anchorage School District. Mr. Wiget cited concerns with the following aspects of SB 85: *Placing pupil transportation in the formula because there is no mechanism for increased costs. *Limiting bilingual, special needs students to 20 percent. There is a growth of such students not from over- identification, but because of actual student need. *How would the area cost differential study be accomplished? In Anchorage, there are three service area pupil transportation contracts coming up in 1998 and three more in 1999 and in 2000 which would not be included in the study which is to be completed in 1999. *The hold harmless clause with the increased local contribution over the next few years. Mr. Wiget was interested in spread sheets that would reflect this with various assumptions. Mr. Wiget commented that the fact that the $61,000 instructional unit value has not changed since 1992 should not be forgotten during this rewriting process. In conclusion, Mr. Wiget supported the rewrite of the formula. Number 192 SCOTT BRANDT-ERICHSEN , Chairman of the Ketchikan Gateway Borough School District, identified the problem surrounding the lack of inflation adjustment. Both SB 36 and SB 85 call for local communities to absorb the increased cost brought about by inflation. Mr. Brandt-Erichsen believed that an area cost differential study was a positive step, but emphasized the need to review how much it would cost to provide a certain level of educational opportunity. The Department of Labor issued a report regarding the cost of living. That report illustrated that the area cost differentials in the current formula are off the mark which SB 85 does not address. Perhaps, the study would address that issue so long as the overexpenditures in travel and such do not occur as in the past. Mr. Brandt-Erichsen pointed out that the area cost differential for Southeast communities is 1.00 as is the case in Kenai and Anchorage, however a cost of living study places the cost of living in Ketchikan as comparable to that in St. Mary or Bethel where the area cost differential is 1.32. In the 1994 1995 Public School Report Card, Ketchikan received less foundation aid per student than virtually any other district. Mr. Brandt- Erichsen said that the key to providing a comparable education opportunity is to design a system which recognizes the accurate costs in each district; without that these bills will not work. DIANE GUBATAYAO , Ketchikan School Board member, supported SB 85 and the specified 20 percent for special needs. SB 85 perpetuates an equitable area cost differential factor. Ms. Gubatayao strongly supported the area cost differential study. Over the recent years, Ketchikan has lost more student services than other comparable districts. Further, the closure of the pulp mill will create a loss in the tax base. Ms. Gubatayao liked the Level III funding and the Quality School Initiative due to the allowance for new funding rather than the mere redistribution of inadequate existing funds. In conclusion, Ms. Gubatayao believed that equity for all students and districts was at issue. Number 089 KEITH TOLZIN , Superintendent of the Ketchikan Gateway Borough School District, supported Mr. Brandt-Erichsen's testimony. Ketchikan has been without services such as nurses, librarians and many others for the last several years. That is a result of the existing inequitable formula. Mr. Tolzin reiterated support for an area cost differential study, but also recommended that the time line be shortened. The information from the Department of Labor should be reviewed. Mr. Tolzin suggested that study be funded immediately. CHRIS CAMPBELL , Ketchikan School Board member, stated that the future looks bleak in Ketchikan regarding this issue. An area cost differential study may be unnecessary, if the Department of Labor's report could be used. Ms. Campbell believed that basing an area cost differential on the cost to operate a school or educate a child may merely ratify the status quo. Ketchikan has a lower educational cost per student due to the many cuts already experienced. Ms. Campbell also noted the economic effects of the closure of the pulp mill and pointed out that the area cost differential study will occur when Ketchikan's economy will be severely depressed. Therefore, the Ketchikan district will be negatively impacted for four years. Ms. Campbell believed that the area cost differential study should be tied to the Department of Labor's information. The hold harmless provision of SB 85 will not necessarily help Ketchikan during the transition because Ketchikan has consistently contributed to the cap without reward or incentive. Ms. Campbell suggested that an incentive be provided for those districts that have historically contributed at or near the cap. Ms. Campbell emphasized that Ketchikan's pupil transportation would be reduced by 50 percent which would devastate the district. TAPE 97-15, SIDE A Number 005 LARRY EKLUND , testifying from Ketchikan, stressed that the gap in Ketchikan is widening. For the past few years, Mr. Eklund acknowledged that the Legislature has made difficult decisions regarding funding, especially for education. Ketchikan's funding per instructional unit remained the same and happily was not reduced. Mr. Eklund said that excellent teachers were being encouraged to retire with the hope that equally competent or better teachers would take their place. Although Mr. Eklund had seen many great first year teachers, he had not seen any that would measure up to these experienced teachers. As public education continues to cut programs and reduce the quality of those working with the students, private schools, charter schools and home schooling will become more prevalent. Mr. Eklund encouraged the Legislature to support an atmosphere for students to achieve all that is possible. Education is expensive, however the lack thereof is more costly. In conclusion, Mr. Eklund urged the committee to increase the funding for education to a meaningful level and provide better equity in the funding. ADELINE HOPSON , Barrow School Advisory Member, had grave concerns with both SB 36 and SB 85. Ms. Hopson indicated that she leaned toward SB 85. She echoed the need to include the cost of living expenses. Every school district needs to discuss this. The North Slope Borough seems to be targeted, although the North Slope has also experienced cuts every year for the past few years. The North Slope still has schools needing maintenance and improvements which must be spread over several years. Number 115 CHAIRMAN WILKEN thanked everyone for participating. Chairman Wilken believed that this issue was one of the most important with which the committee would deal. Perhaps, one of the most important issues for the Legislature as a whole. Chairman Wilken expressed the need to work on this issue in order to find a resolution by adjournment. Chairman Wilken informed the committee of his desire to have a subcommittee of at least three members work on this issue. Senators Leman and Wilken have volunteered. If anyone else is interested, please come forward. SENATOR ELLIS volunteered to serve on the subcommittee as well.