HB 350-PUBLIC SCHOOL FUNDING: LOCAL CONTRIBUTION  9:54:06 AM CHAIR SEATON announced that the final order of business would be HOUSE BILL NO. 350, "An Act relating to the local contribution to public school funding; and providing for an effective date." 9:54:36 AM MYRL THOMPSON, Chair, Member, Legislative Committee, Matanuska- Susitna Borough School Board, directed attention to the graphs that he provided the committee. The graphs illustrate the continued and rapid growth of enrollment and the upward trend of property tax assessments. The aforementioned presents some unique problems for the school district. In the Matanuska- Susitna Borough School District there are 43 schools and 60-plus portables are being used as classrooms. Therefore, the Matanuska-Susitna Borough School Board opposes Section 4 of HB 350. Section 4 would change the structure from the base, which allowed for 50 percent forgiveness on the growth of the assessments over the years. The original base helped the [district] immensely and losing the additional funding [provided by the original base] would be difficult for the district. Mr. Thompson acknowledged that there are always problems with funding, but there are funding adjustments that assist districts. For instance, small schools are adjusted for size, which provides them a break. He said that if there was more time to review HB 350, perhaps a moving base could be developed as opposed to [basing the funding] on the previous year. 9:58:00 AM REPRESENTATIVE P. WILSON inquired as to the tax structure in the Matanuska Susitna Borough. MR. THOMPSON informed the committee that the Matanuska Susitna Borough is the size of West Virginia, and therefore the schools are spread throughout. The [tax burden] is placed on the property taxpayer. The borough includes a lot of vacant land for which the taxes have increased. Furthermore, the borough has many retired residents as well as elderly residents who are on a fixed income. He characterized the area as a bedroom community without much industry. Therefore, it's difficult to raise taxes in the area. 10:00:08 AM REPRESENTATIVE P. WILSON surmised then that the borough hasn't been able to increase its taxes, and thus the borough's revenues have stayed flat. MR. THOMPSON clarified that he can't say revenue is flat, but the district has received an increase in revenue in the amount of less than 1 percent. He reiterated that the district has 60 portables, which amounts to eight large-sized elementary schools in portables or two very large-sized high schools in portables. Therefore, if the district had more funds it would build more schools. 10:00:56 AM MR. THOMPSON, in response to Chair Seaton, clarified that he is only concerned with Section 4. 10:01:42 AM CARL ROSE, Executive Director, Association of Alaska School Boards (AASB), opined that HB 350 will impact those districts in the Railbelt considerably. He stated that although he isn't prepared to take a supportive position on HB 350, he recalled serving on the funding task force when this issue was discussed. He then directed attention to the last sentence of the sponsor statement, which says HB 350 sets a uniform mill rate at the lowest current rate so no district will have to pay more than its current local tax mill rate. However, it should refer to the municipality rather than the district not having to pay more than its current local tax mill rate because districts are the recipients of the local contribution. 10:03:20 AM MR. ROSE, referring to the chart of state costs from the Department of Education and Early Development (EED) updated 10/22/09, told the committee that he was present when the foundation formula was established and later amended. He opined that at that time, no one recognized that the $3 million in fiscal year (FY) 2000 would triple in the second year. Although it didn't compound all the way through, it was rapid growth to this year's $77 million. The concern, he related on behalf of the task force, was that this growth seems to be uncontrollable and thus has to be addressed at some point. Although HB 350 attempts to address the growth, it inevitably creates some problems as related by Mr. Thompson. Upon review of this chart, it appears that everyone will be held harmless at the $77 million level in FY 11. The fiscal note illustrates that the state will need to put up an additional $21 million to mitigate the 2.7 mill rate. The aforementioned is a positive move if the goal is to mitigate the escalating cost of this legislation. However, most of the AASB membership can't calculate the impact of HB 350 in subsequent years. He opined that it would be safe to say that freezing the base at the $77 million level on an ongoing basis and continue to pay the $21 [million] possibly into FY 16 is one way to mitigate the unpredictable costs to the state. Mr. Rose further opined that by putting this in statute, a need has been created and people depend upon the funds and implementation of the proposal in HB 350 will certainly elicit a human cry from certain areas of the state. MR. ROSE informed the committee that when the [foundation formula] legislation was placed in statute, it included a date - the base year of 1999. He noted the different impact on the AASB membership. While some of the small communities haven't grown and thus pay the full portion under the 4 mill and the 2.7 mill rate, some school districts have grown considerably. Over the past 10 years, a need has been developed and it may be difficult to mitigate that all at once if the public policy is to arrest the impacts of this clause in the foundation formula without disturbing local communities that are dependent upon it. Mr. Rose suggested that moving the base to a prior year would have a significant impact on the amount of money available to municipalities for the local contribution in the future. Although this isn't a surprise, it's a tough policy call. In conclusion, Mr. Rose opined that if this issue isn't addressed it will become a "runaway train." However, if the issue is going to be addressed it must be done in a way that allows the communities to ramp down to the level proposed. He reiterated that AASB doesn't know what HB 350 will mean and there's no knowledge what the impact will be in the second, third, and fourth year after the first year when districts are held harmless. 10:10:14 AM REPRESENTATIVE P. WILSON commented that many of the communities that have not grown have lost population, such as Wrangell. Wrangell, she estimated, has lost probably 20 percent of its student population [over the last 10 years] and one-third of its teachers. However, the district still has to provide the school and services. Although Wrangell is under the 4 mill base, it has had to increase its mill rate and sales tax because there aren't enough funds to meet the 4 mills and other community necessities. In Wrangell the mill rate totals 11.5 mills, but the sales tax is 7 percent. The communities that aren't growing don't believe it's fair that the growing communities are receiving breaks while they don't and continue to provide school services. 10:12:25 AM CHAIR SEATON stated that public testimony would remain open, and HB 350 would be held over.