Legislature(2001 - 2002)

04/20/2001 01:08 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                              MINUTES                                                                                         
                     SENATE FINANCE COMMITTEE                                                                                 
                          April 20, 2001                                                                                      
                              1:08 PM                                                                                         
                                                                                                                                
                                                                                                                                
TAPES                                                                                                                       
                                                                                                                                
SFC-01 # 81, Side A                                                                                                             
                                                                                                                              
CALL TO ORDER                                                                                                               
                                                                                                                                
Co-Chair Pete Kelly reconvened the meeting at approximately 1:08                                                                
PM.                                                                                                                             
                                                                                                                                
PRESENT                                                                                                                     
                                                                                                                                
Senator Dave Donley, Co-Chair                                                                                                   
Senator Pete Kelly, Co-Chair                                                                                                    
Senator Jerry Ward, Vice Chair                                                                                                  
Senator Loren Leman                                                                                                             
Senator Lyda Green                                                                                                              
Senator Gary Wilken                                                                                                             
Senator Alan Austerman                                                                                                          
Senator Lyman Hoffman                                                                                                           
Senator Donald Olson                                                                                                            
                                                                                                                                
Also Attending:  EDDY JEANS, Manager, School Finance and Facilities                                                           
Section, Education Support Services, Department of Education and                                                                
Early Development.                                                                                                              
                                                                                                                                
SUMMARY INFORMATION                                                                                                         
                                                                                                                                
SB 174-EDUCATION FUNDING                                                                                                        
                                                                                                                                
The Committee considered five amendments and adopted four. The                                                                  
Committee heard from the Department of Education and Early                                                                      
Development and the bill reported from Committee.                                                                               
                                                                                                                                
                                                                                                                                
[This meeting had been recessed to the call of the chair. Minutes                                                               
for the earlier portion of the meeting are recorded separately.]                                                                
                                                                                                                                
                                                                                                                                
     SENATE BILL NO. 174                                                                                                        
     "An Act relating to education funding; and providing for an                                                                
     effective date."                                                                                                           
                                                                                                                                
                                                                                                                                
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Amendment #1:  This amendment inserts a new bill section  on page 2,                                                            
following line 17 to read as follows.                                                                                           
                                                                                                                                
     Sec. 3. AS  14.17.510 is amended by adding a  new subsection to                                                            
     read:                                                                                                                      
          (c) Notwithstanding AS 14.17.410(b)(2)(A) and the other                                                               
     provisions of this  section, if the assessed value in a city or                                                            
     borough  school district determined  under (a) of this  section                                                            
     increases  from the base year, only 50 percent  of the increase                                                            
     in assessed  value may be included in determining  the assessed                                                            
     value  in a city or borough school  district under (a)  of this                                                            
     section.  The limitation on the  increase in assessed  value in                                                            
     this  subsection applies  only to a  determination of  assessed                                                            
     value for purposes  of calculating the required contribution of                                                            
     a city or  borough school district under AS 14.17.410(b)(2)(A)                                                             
     and 14.17.490(b).  In this subsection,  the base year  is 2000.                                                            
                                                                                                                                
Senator Wilken moved for adoption.                                                                                              
                                                                                                                                
Senator Hoffman objected for discussion.                                                                                        
                                                                                                                                
Senator  Wilken spoke  to  the amendment,  saying  that the  current                                                            
education  foundation funding  formula is  calculated using  student                                                            
population  multiplied by  student dollar,  which equals the  "basic                                                            
need"  and from  that amount,  the  required local  contribution  is                                                            
subtracted.  He  defined  local  contribution  as  the  amount  each                                                            
community in organized  areas of the state is required to contribute                                                            
before  qualifying   for  state  funding.    He  stated   the  local                                                            
contribution  is the equivalent of  four mils of the "full  and true                                                            
assessed  value" of the  property contained  within the boundary  of                                                            
the organized community.                                                                                                        
                                                                                                                                
Senator Wilken  detailed how, under  current statute, each  increase                                                            
in assessed value is passed  along to property owners as an increase                                                            
in  the  amount  of  property  tax  due  for  the  local   education                                                            
contribution.  He explained  that this amendment  provides  that the                                                            
state splits the  cost of increases in assessed property  value with                                                            
the property  taxpayer so  that instead of  paying four mils  toward                                                            
the local education  contribution, the property owner  only pays two                                                            
mils on any  assessment increases.  He characterized this  amendment                                                            
as a property tax relief for "all of organized Alaska."                                                                         
                                                                                                                                
Senator Wilken opined this  amendment, "recognizes the fact that the                                                            
state  and the communities  are  in a joint  effort  to make this  a                                                            
better  place  to live  and  to  do that  through  having  a  better                                                            
education system."                                                                                                              
                                                                                                                                
Senator Hoffman referred  to the amendment's accompanying worksheet,                                                            
"Impact of  Senate Bill 174 Amendment  by Senator Wilken"  and asked                                                            
why some of  the required local increases  are shown as a  negative,                                                            
when the amendment sponsor stated, "everyone was benefiting."                                                                   
                                                                                                                                
Senator  Wilken  replied  this is  a  function  of the  increase  or                                                            
decrease  in assessed  value. He noted  that if  the assessed  value                                                            
decreases  in an organized  community, there  is no "increased  need                                                            
because the assessed value hasn't gone up."                                                                                     
                                                                                                                                
Senator  Hoffman  asked  for  clarification   that  the communities                                                             
showing negative figures have decreased assessed values.                                                                        
                                                                                                                                
Senator  Wilken  affirmed  and  pointed  out that  the  figures  are                                                            
"relatively correct" in their application to this amendment.                                                                    
                                                                                                                                
Senator Wilken  noted that of the  predicted $8 million increase  in                                                            
revenue for the state resulting  from increased assessed values, the                                                            
property taxpayers would only have to contribute $4 million.                                                                    
                                                                                                                                
Co-Chair Kelly  emphasized that under this amendment,  "no community                                                            
has to end up  paying more" and that communities qualifying  for the                                                            
provision  would "qualify to  pay less." He  added that the  current                                                            
four-mil equivalent  would apply to  any community with a  decreased                                                            
assessed value.                                                                                                                 
                                                                                                                                
Senator  Hoffman  asked  if  the estimated  increase  to  the  state                                                            
general fund is $3.7 million.                                                                                                   
                                                                                                                                
Senator  Wilken affirmed.  He added  that the  figures provided  are                                                            
based on Department  of Education and Early Development  projections                                                            
for FY 02.                                                                                                                      
                                                                                                                                
Co-Chair  Kelly  was  uncertain  whether  this  amendment   provides                                                            
increased funding to the general fund.                                                                                          
                                                                                                                                
Senator Leman explained  it results in an increased liability to the                                                            
general fund.                                                                                                                   
                                                                                                                                
Senator  Austerman  asked if  this amendment  was  an incentive  for                                                            
communities to raise assessed values.                                                                                           
                                                                                                                                
Senator Wilken  replied that assessed value is based  on a number of                                                            
factors. If  the local economy is  healthy, he said, assessed  value                                                            
should increase  on a regular  basis. He  surmised that if  assessed                                                            
values continually decrease  there are several incentives to improve                                                            
the economy.                                                                                                                    
                                                                                                                                
Co-Chair Kelly  added that assessed  value is established  by law or                                                            
local ordinance  and would be difficult to manipulate.  He suggested                                                            
that  a  community  would  need  to  ensure  current  recordings  of                                                            
assessed values.                                                                                                                
                                                                                                                                
Senator Wilken agreed and  stressed it is a function of law and that                                                            
organized  communities   in Alaska  have  an  established   assessor                                                            
process.                                                                                                                        
                                                                                                                                
Senator Hoffman asked the reasoning for this amendment.                                                                         
                                                                                                                                
Senator Wilken responded  that because of the recently failed ballot                                                            
proposal to limit the mil  rate to ten mils, the public is clamoring                                                            
for tax relief  and this amendment provides some.  He continued that                                                            
the legislature  works to make the  state more successful,  which is                                                            
measured in assessed value,  but then the successes are passed along                                                            
to the community in the  form of higher taxes. He saw this amendment                                                            
as a  partnership  between  the state  and local  municipalities  to                                                            
improve assessed values.                                                                                                        
                                                                                                                                
Senator  Austerman  commented   that  a  number  of  communities  in                                                            
Southeastern  Alaska  show  no  increases  in  assessed  values.  He                                                            
attributed this to the state of the timber industry.                                                                            
                                                                                                                                
A roll call was taken on the motion.                                                                                            
                                                                                                                                
IN  FAVOR: Senator  Leman,  Senator  Ward, Senator  Wilken,  Senator                                                            
Austerman, Senator Green, Co-Chair Donley and Co-Chair Kelly                                                                    
                                                                                                                                
OPPOSED: Senator Olson and Senator Hoffman                                                                                      
                                                                                                                                
The motion PASSED (7-2)                                                                                                         
                                                                                                                                
The amendment was ADOPTED.                                                                                                      
                                                                                                                                
Senator  Wilken  directed  members'  attention  to  material  to  be                                                            
distributed that was supplied  by the Mat-Su Borough school district                                                            
along  with a  chart  showing  the full  and  true value  change  in                                                            
Anchorage,  Fairbanks,  Juneau,  Kenai,  Mat-Su and  the  statewide.                                                            
[Copies on file.]                                                                                                               
                                                                                                                                
Amendment #2:  This amendment changes  the average daily  membership                                                            
(ADM) in Section  3(2) from 400 to  425. The amended language  reads                                                            
as follows.                                                                                                                     
                                                                                                                                
          (2) a community with an ADM of at least 101, but not more                                                             
     than 400 [750], shall be counted as                                                                                      
                (A) one elementary school, which includes those                                                                 
          students in grades kindergarten through six [6]; and                                                                
                (B) one secondary school, which includes students in                                                            
          grades seven [7] through 12;                                                                                        
                                                                                                                                
     New Text Underlined [DELETED TEXT BRACKETED]                                                                             
                                                                                                                                
Co-Chair Donley moved for adoption.                                                                                             
                                                                                                                                
The amendment was ADOPTED without objection or discussion.                                                                      
                                                                                                                                
AT EASE 1:18 PM / 1:21 PM                                                                                                       
                                                                                                                                
Amendment  #3: This  conceptual amendment  inserts  new language  in                                                            
Section 1 (b)(2)  on page 2 following  line 14 to read, "subsection                                                             
(B) is limited to districts  in which the per student assessed value                                                            
is not less than $2,000,000."                                                                                                   
                                                                                                                                
Co-Chair  Donley  explained  this  would  limit the  effect  of  the                                                            
increase  to 100 percent  of a district's  basic need to only  those                                                            
communities that  currently have a per pupil assessed  value of over                                                            
$2 million.                                                                                                                     
                                                                                                                                
Senator  Hoffman  stressed,  "This  is a  pretty  monumental  change                                                            
affecting  all  school districts  in  the  state," and  requested  a                                                            
representative   from  the   Department  of   Education  and   Early                                                            
Development address the amendment.                                                                                              
                                                                                                                                
AT EASE 1:22 PM / 1:26 PM                                                                                                       
                                                                                                                                
Senator Hoffman  gave a scenario of a school burning  down and asked                                                            
if this amendment  would "hamstring"  the rebuilding of that  school                                                            
if it  were in a  district that  exceeds the  $2 million  assessment                                                            
amount. He wanted to know  if the school district would be unable to                                                            
issue new bonds to cover construction costs.                                                                                    
                                                                                                                                
EDDY  JEANS,  Manager,   School  Finance  and  Facilities   Section,                                                            
Education  Support  Services,  Department  of  Education  and  Early                                                            
Development, testified  that because he had no notice  this bill and                                                            
its amendments  would be considered at this time,  he was unprepared                                                            
to speak on the matter.                                                                                                         
                                                                                                                                
Mr. Jeans then  corrected his response  to a different hypothetical                                                             
situation Co-Chair Kelly  raised at an earlier hearing for this bill                                                            
regarding  the  perception   that  the  Fairbanks  school   district                                                            
receives  less state  aid then  it otherwise  would  receive if  the                                                            
North Slope Borough (NSB)  was required to contribute the equivalent                                                            
of four  mils toward its  local education.  He stated that  the only                                                            
way  the Fairbanks  North  Star Borough  (FNSB) would  receive  more                                                            
money  is with  an increase  in base  student allocation  under  the                                                            
foundation funding formula.  Therefore, he said, NSB receiving funds                                                            
under the foundation  funding formula  does not alter the  amount of                                                            
funds the FNSB receives.                                                                                                        
                                                                                                                                
Co-Chair  Kelly stated  that the witness  would  not be required  to                                                            
testify on matters without the opportunity to prepare.                                                                          
                                                                                                                                
Senator Hoffman  asked if  the department supports  the bill  in its                                                            
current version.                                                                                                                
                                                                                                                                
Mr.  Jeans  reiterated  that the  department  is  on the  record  in                                                            
opposition to the bill.                                                                                                         
                                                                                                                                
Co-Chair  Donley restated  the conceptual  amendment  and moved  for                                                            
adoption.                                                                                                                       
                                                                                                                                
Senator  Hoffman objected  and  asked why  the sponsor  deemed  this                                                            
amendment necessary.                                                                                                            
                                                                                                                                
Co-Chair  Donley responded  it is fair to  require a community  with                                                            
wealth to pay  more toward its local  education in an amount  closer                                                            
to that  currently  required  of those  communities  subject to  the                                                            
four-mil property tax contribution.  He stressed, "I think it's self                                                            
evident,"  and noted that  this amendment adds  a "third factor"  to                                                            
the existing four-mil  equivalency and the 45 percent  factor, which                                                            
this bill increases  to 100 percent.  He stated that this  amendment                                                            
"would recognize  that those communities who haven't  gone that much                                                            
in debt, would  not be subject to the 100 percent  change, but those                                                            
communities  that have chosen  to go farther  in debt would  be." He                                                            
surmised this  is "based on an assessment of their  local wealth and                                                            
their ability to pay and  the fact that even with that they're still                                                            
not going  to be paying  the four mils that  many other communities                                                             
are in  fact paying, and  in fact some communities  are paying  more                                                            
than four mils, a lot more than four mils."                                                                                     
                                                                                                                                
Senator  Hoffman  spoke to  his  objection  saying it  is  primarily                                                            
targeting  one  school  district,  which  is the  NSB  district.  He                                                            
emphasized  that  the Alaska  Association  of  School  Boards is  on                                                            
record in opposition of  the "targeting" of any one school district.                                                            
                                                                                                                                
Senator Wilken  opined that "it deserves  to be said, we  derive our                                                            
monies  to  fuel the  K-12  formula  across the  state  on  assessed                                                            
value." He listed  the per-student asset base in the  NSB as $5.5 to                                                            
$6 million.  He compared this to the  statewide average of  $400,000                                                            
per student. He remarked,  "I don't target the North Slope, I target                                                            
the  inequity  and inequality  of  that  asset  base being  able  to                                                            
support a certain level  of K-12." He continued, "Because of the law                                                            
that's in place, they're  required on their asset base to fund it at                                                            
half of the people  that I represent." He stressed  that this is the                                                            
issue this  amendment "speaks to",  pointing out that if  a district                                                            
has an asset  base 30 times that of  the remainder of the  state, "I                                                            
don't think it's unfair to ask that you pay for your education."                                                                
                                                                                                                                
Senator  Olson understood  the  reasoning  behind the  argument  but                                                            
stressed  that the  NSB has funded  some "very  expensive  programs"                                                            
that  are normally  funded by  the state  in other  communities.  He                                                            
surmised  that since the  NSB plays an active  part in funding  such                                                            
items  as public  health,  including  local hospitals,  clinics  and                                                            
water and  sewer projects,  to add the  education requirements,  "is                                                            
almost like  strapping another  burden" onto  the NSB. He  predicted                                                            
that removing  almost  $10 million  from the  school district  would                                                            
"cause  a  fair  amount  of  disruption  of  the  services  for  the                                                            
students."  He  noted  that  this coupled  with  the  decreased  oil                                                            
production  would "have a very detrimental  effect on the  people of                                                            
the district that I represent."                                                                                                 
                                                                                                                                
Co-Chair Donley  corrected his earlier statements  regarding bonding                                                            
indebtedness, saying he intended to speak to assessed value.                                                                    
                                                                                                                                
Senator  Hoffman  addressed  Senator  Wilken's  comments   regarding                                                            
"letting them pay their  fair share" pointing out that Amendment #1,                                                            
sponsored  by Senator  Wilken, mainly  benefited  Anchorage at  $1.8                                                            
million and Fairbanks  at $554,000. Senator Hoffman  calculated that                                                            
64 percent of  the $3.7 million benefited those two  communities. It                                                            
seemed to  him that "somebody  is being targeted"  and "somebody  is                                                            
being a major benefactor."                                                                                                      
                                                                                                                                
A roll call was taken on the motion.                                                                                            
                                                                                                                                
IN FAVOR: Senator  Ward, Senator Wilken, Senator Austerman,  Senator                                                            
Green, Senator Leman, Co-Chair Donley and Co-Chair Kelly                                                                        
                                                                                                                                
OPPOSED: Senator Hoffman and Senator Olson                                                                                      
                                                                                                                                
The motion PASSED (7-2)                                                                                                         
                                                                                                                                
The amendment was ADOPTED.                                                                                                      
                                                                                                                                
Amendment  #4:  This   conceptual  amendment  gives   the  co-chairs                                                            
authority to change the title of the committee substitute.                                                                      
                                                                                                                                
Co-Chair Donley  explained this amendment gives the  co-chairs, "the                                                            
latitude  to construct  a title  that more accurately  reflects  the                                                            
content of the new committee substitute."                                                                                       
                                                                                                                                
Senator Hoffman  objected saying that  due to the importance  of the                                                            
matter, any title  changes should come before the  entire Committee.                                                            
                                                                                                                                
Senator Olson  made a motion to delete Section 1 from  the committee                                                            
substitute.                                                                                                                     
                                                                                                                                
[This motion was  out of order as there was a motion  already on the                                                            
table.]                                                                                                                         
                                                                                                                                
AT EASE 1:40 PM / 1:42 PM                                                                                                       
                                                                                                                                
Co-Chair  Donley restated  that  the amendment  is to  give the  co-                                                            
chairs the flexibility  to draft a title that reflects  the contents                                                            
of the bill  in more detail. He stated  that this may or  may not be                                                            
possible in the given timeframe.                                                                                                
                                                                                                                                
Senator Hoffman  spoke to his objection  emphasizing that  the title                                                            
to any legislation is "crucial"  in how it is drafted. Therefore, he                                                            
urged the Committee  to "act responsibly" and review  any changes to                                                            
the bill title as a unit.                                                                                                       
                                                                                                                                
A roll call was taken on the motion.                                                                                            
                                                                                                                                
IN FAVOR: Senator Wilken,  Senator Austerman, Senator Green, Senator                                                            
Leman, Senator Ward, Co-Chair Donley and Co-Chair Kelly.                                                                        
                                                                                                                                
OPPOSED: Senator Hoffman and Senator Olson                                                                                      
                                                                                                                                
The motion PASSED (7-2)                                                                                                         
                                                                                                                                
The amendment was ADOPTED.                                                                                                      
                                                                                                                                
Amendment #5: This amendment deletes Section 1 from the bill.                                                                   
                                                                                                                                
Senator Olson moved for adoption.                                                                                               
                                                                                                                                
Co-Chair Kelly objected.                                                                                                        
                                                                                                                                
Senator Olson remarked  that the exit exam activities have shown the                                                            
need  for more  education assistance  rather  than less  in the  NSB                                                            
school district.  He asserted  that reducing  funding would  have "a                                                            
further negative effect"  in the education of the students and their                                                            
performance  on the exit  exams. He  did not judge  it fair  to take                                                            
away from one school district for the benefit of another.                                                                       
                                                                                                                                
Senator  Wilken   clarified,  "It  doesn't  come  from   the  school                                                            
district. The  monies come from the borough and appropriated  to the                                                            
school  district."  Therefore,   he  stressed  there  is  no  direct                                                            
relationship between this bill and the school districts.                                                                        
                                                                                                                                
A roll call was taken on the motion.                                                                                            
                                                                                                                                
IN FAVOR: Senator Austerman, Senator Hoffman and Senator Olson                                                                  
                                                                                                                                
OPPOSED: Senator Green,  Senator Leman, Senator Ward, Senator Wilken                                                            
Co-Chair Donley and Co-Chair Kelly                                                                                              
                                                                                                                                
The motion FAILED (3-6)                                                                                                         
                                                                                                                                
The amendment FAILED to be adopted.                                                                                             
                                                                                                                                
Co-Chair Donley  offered a motion to report from Committee,  SB 174,                                                            
as amended with a new Department  of Education and Early Development                                                            
fiscal note for $1,600,800.                                                                                                     
                                                                                                                                
Senator Hoffman made a motion to table the bill.                                                                                
                                                                                                                                
Senator Ward called for the question.                                                                                           
                                                                                                                                
A roll call was taken on the motion to table the bill.                                                                          
                                                                                                                                
IN FAVOR: Senator Olson and Senator Hoffman                                                                                     
                                                                                                                                
OPPOSED: Senator  Ward, Senator Wilken,  Senator Austerman,  Senator                                                            
Green, Senator Leman, Co-Chair Donley and Co-Chair Kelly                                                                        
                                                                                                                                
The motion FAILED (2-7)                                                                                                         
                                                                                                                                
The committee substitute FAILED to be tabled.                                                                                   
                                                                                                                                
A  roll call  was  taken  on the  motion  to  report the  bill  from                                                            
Committee.                                                                                                                      
                                                                                                                                
IN  FAVOR:  Senator Green,  Senator  Leman,  Senator  Ward,  Senator                                                            
Wilken, Senator Austerman, Co-Chair Donley and Co-Chair Kelly                                                                   
                                                                                                                                
OPPOSED: Senator Hoffman and Senator Olson                                                                                      
                                                                                                                                
The motion PASSED (7-2)                                                                                                         
                                                                                                                                
The amended bill MOVED from Committee.                                                                                          
                                                                                                                                
[Note: The bill was not  transmitted to the Senate Secretary at this                                                            
time. The  Committee later  rescinded its action  to move the  bill,                                                            
adopted  Amendment #6,  and reported  the bill  from Committee.  See                                                            
minutes of April 24, 2001 for complete account.]                                                                                
                                                                                                                                
ADJOURNMENT                                                                                                                 
                                                                                                                                
Co-Chair Pete Kelly adjourned the meeting at 01:48 PM.                                                                          

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