Legislature(1997 - 1998)

02/19/1997 09:03 AM Senate HES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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            
 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                  
  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             
  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                
  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                 
  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                   
 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                
  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.             

Document Name Date/Time Subjects