HOUSE BILL NO. 373 "An Act extending specified public school bond debt reimbursement; and providing for an effective date." Co-Chair Hoffman MOVED to ADOPT SCS HB 373, labeled 25- LS13040/C, Mischel, 3/24/08, as the working document. Co-Chair Stedman OBJECTED for purposes of discussion. 10:18:07 AM EDDY JEANS, DIRECTOR, EDUCATION SUPPORT SERVICES, DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, explained that the Committee Substitute for HB 373 amends AS 14.11.008(b), the participating share for school districts to address major maintenance and school construction programs. He informed the committee that the table was set into statute in 1993. Since then, property values have increased around the state. The Alaska Municipal League requested that the state update the table to reflect increases in property values. Co-Chair Stedman WITHDREW his OBJECTION. There being NO further OBJECTION, 25-LS13040/C was adopted. 10:21:02 AM REPRESENTATIVE KEVIN MEYER, SPONSOR, explained that HB 373 extends the sunset of the current school bond dept reimbursement program from November 2008, to November 30, 2010. Projects on the Department of Education and Early Development approved list would still be reimbursed at 70 percent; other projects would be reimbursed at 60 percent. The State of Alaska's school bond debt reimbursement program is an important partnership between communities and the state, where each shares a portion of the cost of school construction. He underlined that without this assistance many municipalities would not be able to afford school construction costs. Co-Chair Hoffman felt there should be a long-term solution for what the provision addresses. He emphasized the importance of urban and rural schools being funded on an equitable basis. Representative Meyer agreed with Co-Chair Hoffman. 10:24:33 AM DAN BOCKHORST, MANAGER, KETCHIKAN GATEWAY BOROUGH testified via teleconference in support of the bill. He noted that when the current law was enacted in 1993, it reflected a rational public policy choice that municipal school districts with greater fiscal resources should pay a higher share of local major maintenance costs. He explained that, since then, inflation has increased at 42 percent over the past 15 years, and the decline in student enrollment has increased significantly. Due to these factors, both urban and rural districts have suffered unintended consequences. Mr. Bockhorst provided an example: Kluwock has had a six- fold increase in its major maintenance cost share over the past 15 years. Initially, Kluwock paid 5 percent of major maintenance costs. Currently, the local share is at 30 percent. For the past 14 years Ketchikan has had to shoulder the same 30 percent share that Kluwock now faces. Ketchikan will still pay major maintenance costs unless the CS is passed. The increase facing Ketchikan is not due to an increase in its tax base, it is due to the decline in student enrollment - more that 16 percent since 1993. If moderate relief is granted through the CS, local governments will continue to shoulder a substantial burden: Ketchikan will still pay $3 million as its share of major maintenance costs in the upcoming year. Without the CS, the figure will increase by $500,000. Mr. Bockhurst urged support of the CS in order to provide needed relief to both urban and rural districts throughout Alaska. 10:28:00 AM Co-Chair Hoffman asked Mr. Jeans to convey the urgency of passing the legislation this year. Mr. Jeans explained that the law is to sunset in November of 2008. If the sunset is not extended now, then the legislature would not be able to address the issue until the next session in January. Co-Chair Hoffman asked what the impact to school districts would be, in terms of construction planning and budgeting, if the legislation were not passed this session. He further queried if any school districts had expressed the need for passage of the bill due to plans to move forward with specific bond issues. Mr. Jeans reported that the only district that had contacted him regarding the sunset of the bill was the Juneau School District. He elaborated that the Juneau School District intends to take projects before voters this year. If the legislation is not passed the district would have waited a year. 10:30:31 AM In response to Senator Dyson, Mr. Jeans said the reference made by Mr. Brockhurst has to do with the participating share under the grant program. Currently, Klawock has participating shares at 30 percent. With the enactment of the CS, the participating share would drop to 10 percent. This has to do with the property value per child. Senator Dyson asked how many other communities would qualify at 10 percent. Mr. Jeans clarified that Klawock is the only community whose share decreases to 10 percent. Senator Huggins asked if any communities would see a participating share increase. Mr. Jeans responded that under the CS the share would only decrease. He further clarified that the CS does not change current law for the debt reimbursement program, it only extends it for two years. Co-Chair Stedman noted that the enrollment decline is a significant factor when addressing funding for schools. 10:33:25 AM In response to Senator Dyson, Representative Meyer said it is always assumed there will be a state match. The current law carries through to November 2008. Bonds passed in April will be covered under the CS. He also responded to an earlier question regarding the effects of waiting a year to pass legislation. If action on the provision is postponed, it will have an effect on the Anchorage election next year, but has no effect this year. 10:34:03 AM Co-Chair Hoffman commented that if the CS were to pass, there would be plenty of time before the voting cycle. Senator Dyson felt that if the bill passed in this session, it would substantiate the state commitment to reimburse school districts. He maintained that with the uncertain stability of high oil prices, he supports a two or three year sunset. SCS HB 373(FIN) was HEARD and HELD in Committee for further consideration.