HB 133-SCHOOL CONST. GRANTS/SMALL MUNICIPALITIES  8:04:44 AM CHAIR GATTIS announced that the first order of business would be HOUSE BILL NO. 133, "An Act relating to grants for school construction." 8:05:18 AM TIM CLARK, Staff, Representative Bryce Edgmon, Alaska State Legislature, presented a PowerPoint, titled "HB 133 School Construction Grants/Small Municipalities." [Included in members' packets] He read from slide 2: "HB 133 makes small municipal school districts that meet certain criteria eligible for school construction funding from the REAA fund. Five districts would currently qualify. They are Saint Mary's, Tanana, Kake, Klawock, and Hydaburg." He stated that the proposed bill related to Willie and Sophie Kasayulie, et al., v. State of Alaska, 3AN-97-3782 CI, (1999), which had identified inequitable access to construction funding for rural schools. He explained: Most municipal districts are able to bond for school construction and subsequently access the state's debt reimbursement program. However, Regional Education Attendance Areas (REAAs) as well as some small rural school districts lack taxable bases large enough to make bonding for construction possible. Therefore, REAAs and some small rural school districts can never access the guaranteed state funding that exists in the form of the bonding debt reimbursement program. MR. CLARK read from slide 3, "The REAA Fund was established in 2010 to make a more reliable, consistent funding stream available to REAAs, none of which can bond for school construction," and he shared that they would not have access to this guaranteed funding stream in the form of debt reimbursement. He continued reading: "Some small municipal school districts are effectively in the same circumstances as REAAs." Moving on to slide 4, he stated that, "The Department of Education and Early Development Capital Improvement Projects School Construction Grant Fund List," which he declared would be referred to as "The List," "plays a central role." Directing attention to slide 5, "Paths to School Construction Funding in the Capital Budget," he declared that these pathways were the heart of the proposed bill and school construction funding. He tracked the paths to receiving school construction funding in the Capital Budget, and walked through the available means for construction funding. He declared that bonding was available to most municipal districts, as the State of Alaska subsequently reimbursed 60 - 70 percent of that annual bond debt as guaranteed by law. He described that the other path was through the school construction grant list, which was open to REAAs, small municipal school districts without bonding capability, and those districts with bonding capability, if they so choose. He explained that the Department of Education and Early Development (EED) ranked all the projects on the grant list by priority, and that the projects then awaited funding in that order of priority. He explained that a non-REAA project was reliant on legislative appropriation from the General Fund, with no guarantee to any project on the list that funds would be made available. He pointed out that an REAA project at the top of the list would have access to designated funding in the REAA fund by the legislature, with no other competition. 8:12:29 AM REPRESENTATIVE P. WILSON asked how schools would qualify to be placed on the list. MR. CLARK replied that there was an EED application process for assessment and addition to the list. REPRESENTATIVE P. WILSON offered her belief that it was necessary for an architect or engineer to review the project prior to the EED. MR. CLARK pointed out that school construction was not solely defined as an entirely new structure, and could include expansion of capacity. 8:13:59 AM REPRESENTATIVE SADDLER directed attention to slide 5, and clarified that the list for non-REAA projects was recreated every year, so that there could always be higher priority issues such that there are schools that edge out others. MR. CLARK expressed his agreement, and explained that the set of criteria by the department includes considerations for health and safety issues, such that a natural disaster issue could prioritize a project. REPRESENTATIVE SADDLER pointed out that both ranking and a lack of appropriation could mean that a project would never reach the top of the list. MR. CLARK agreed that was concern for any project on the Non- REAA project list. CHAIR GATTIS reminded the committee that the EED had a representative available to answer any questions. 8:15:33 AM REPRESENTATIVE LEDOUX, offering an example for a number of families settling in a remote area where there was not a school, although there were ten children, asked if a school would automatically be built to accommodate them. MR. CLARK offered his belief that the area would need to incorporate in some form of municipality in order to receive the funding. 8:17:05 AM ELIZABETH SWEENEY NUDELMAN, Director, School Finance and Facilities Section, Department of Education and Early Development (EED), in response, said that the arrival of 10 students to a community would not automatically entitle a school. She said that criteria for school construction would need to be met, which included identification as an attendance area, with an additional review for an area of less than 24 students. REPRESENTATIVE LEDOUX reflected on an earlier visit to a logging camp where a school had existed in a trailer which did not appear to be an EED approved building. She reported that the logging camp had more students than many villages, and she asked why this community had not been entitled to a school. MS. NUDELMAN explained that modular units were provided to some areas, but that any community requesting a school would need to process an application for funding and construction through EED. 8:20:13 AM REPRESENTATIVE DRUMMOND noted that a logging camp was, by definition, a temporary location. She pointed out that the Anchorage School District had supplied as many as 150 portable classrooms. Referring to the statement on slide 5, "60-70 percent of annual bond debt, guaranteed by law," she stated that the Anchorage School District never took that for granted, even though millions of dollars were passed in bond issues. She stated that there was always a final decision for funding by the State Legislature. MR. CLARK suggested that it would be better to state that the reimbursement program was in law. 8:21:25 AM REPRESENTATIVE SEATON, referring to the aforementioned "The List," offered his belief that school districts were not able to receive assessment grants from [Department of Commerce, Community & Economic Development] to develop the criteria for consideration by Department of Education and Early Development (EED) to be placed on "The List." He asked if this information was correct. MR. CLARK deferred. MS. NUDELMAN explained that she was not familiar with a grant program for application development, but that school districts had the opportunity to apply to EED for phased funding, which included design funding for project development. She reported that some of the applications were developed in-house at the school districts, and that the application process was very clear. She stressed that there were several avenues for the school districts in preparation of the applications. REPRESENTATIVE SEATON referred to non-REAA projects, and pointed to a large re-build project in the Anchorage School District, which the Alaska State Legislature had approved and funded. 8:24:53 AM MR. CLARK, directing attention to slide 5, emphasized the contrast in the funding avenues for projects that were eligible for the REAA fund versus those that were non-REAA eligible. He declared that an REAA project had a greater likelihood for funding due to the availability of the fund. REPRESENTATIVE SEATON asked to clarify that the fund had been created as a result of Willie and Sophie Kasayulie, et al., v. State of Alaska, 3AN-97-3782 CI, (1999), which had determined that rural school districts did not have the same opportunity for construction as the municipal school districts. MR. CLARK expressed his agreement that this provided a more reliable funding stream. 8:26:25 AM MR. CLARK read slide 6 which summarized the PowerPoint presentation: HB 133 makes small municipal school districts that meet certain criteria eligible for the REAA fund. Five districts would currently qualify. They are Saint Mary's, Tanana, Kake, Klawock, and Hydaburg. Like REAAs, these districts are not capable of bonding and need access to the more consistent, reliable funding source the REAA Fund creates. Making them REAA Fund-eligible will further rectify the inequities in rural school construction funding identified in Kasayulie v. Alaska. 8:27:18 AM REPRESENTATIVE P. WILSON asked who could apply to the REAA fund. MR. CLARK replied that every REAA in the state was eligible, and that proposed HB 133 would add eligibility for these five small municipal school districts which were currently in a different category. REPRESENTATIVE P. WILSON asked to clarify that the limited fund was being opened to more qualified school districts. MR. CLARK explained that the practical effect on the fund was small, as the fund was annually capitalized according to a formula. 8:29:29 AM TOM BEGICH, Policy Director, Citizens for the Educational Advancement of Alaska's Children (CEAAC), explained that CEAAC represented 21 of the 53 school districts in Alaska, and that REAAs were the choice for highest priority of funding. He declared that the members of CEAAC were in support of proposed HB 133. He pointed out that the aforementioned five small school districts had all been original members of the Kasayulie lawsuit, but had not been included in the settlement language for the REAA fund. He declared that proposed HB 133 would correct this inequity. REPRESENTATIVE P. WILSON asked how many schools were included in REAAs. MR. BEGICH replied that he did not have the exact number. 8:31:30 AM REPRESENTATIVE SADDLER asked if there was any prospect for future expansion. MR. BEGICH replied that CEAAC did not intend to ask for expansion, as the formula for REAA funding was very equitable, and only allowed for school districts without the ability to bond. REPRESENTATIVE SADDLER asked if proposed HB 133 would dilute the availability of funds to the REAAs. MR. BEGICH replied that there would be minimal dilution of funding to the REAAs in the next five to eight years, specifically as there were not a lot of projects currently on the list. 8:34:11 AM REPRESENTATIVE SADDLER referred to the fourth paragraph of the Sectional Summary [Included in members' packets} and read: "The change provides that the percentage of municipal school districts that are eligible for the REAA Fund will not be included in the percentage of municipal school districts by which the annual debt service is divided in the formula." He asked for further clarification of the section. MR. BEGICH explained that the five schools were being moved "from one end of a divisor and putting them in the other end of the divisor." He pointed out that the divisor was determined by the total amount of bonding in any given year. He reported that the current fund was a bit more than $35 million but could not exceed $70 million. He said that this would add an additional $600,000 to the fund. 8:35:51 AM MS. NUDELMAN, referring to an earlier question, said that there were 451 schools in the state, and that 136 schools were in REAA's, while the remaining 315 schools were in the city and borough school districts. 8:36:53 AM REPRESENTATIVE REINBOLD asked how many of the REAA's had a tax base which could contribute locally to the schools. 8:37:07 AM MS. NUDELMAN replied that as the REAA's are in unorganized areas of the state they were not organized to assess taxes similar to city and boroughs. She noted that these REAAs did occasionally receive impact aid. 8:38:00 AM MS. NUDELMAN, in response to Representative P. Wilson, confirmed that 136 schools were eligible for the construction project list and access to the REAA fund, and that proposed HB 133 would add 5 more schools. 8:38:42 AM REPRESENTATIVE SADDLER offered his belief that the unorganized boroughs would eventually become organized boroughs, and asked if the REAAs would eventually become school districts. MS. NUDELMAN replied that this was a state policy question and she would not speculate on it. REPRESENTATIVE SADDLER asked if any REAAs had become school districts. 8:39:49 AM MR. BEGICH, noting that the history of the state was consistent, explained that when a borough was formed the REAA became, instead, a functioning school district with a tax base. He pointed out that this decision was quite complex and was made in conjunction with the Local Boundary Commission, although it was based on the ability to have a sustainable tax base. 8:40:40 AM REPRESENTATIVE P. WILSON, directing attention to the military base in the area between Fairbanks and Tok, asked if there was a tax base even though it was not a borough. MR. BEGICH replied that many entities went through a long process for determination of borough formation, and that there was an initiative being considered in that area. 8:41:46 AM REPRESENTATIVE SEATON asked if the tax from oil and gas production located in an REAA was paid to the State of Alaska. MR. BEGICH replied that this was correct. 8:42:38 AM DAVID HERBERT, Superintendent, Saint Mary's City School District, provided historical background to explain that the district had been excluded during the final settlement negotiations of Kasayulie as it was not an REAA school district, but a first class city school district. He explained that a first class city school district required an annual local contribution from the city to the school district to offset the costs of its operation, whereas an REAA did not have this mandatory local contribution. He pointed out that Saint Mary's City School District was surrounded by REAA districts, all of which benefitted from the aforementioned settlement for school construction funds. He explained that the school district had taken the necessary steps to improve its position on the school construction list by writing a quality application, academically outperforming the surrounding schools, and showing a frugal fiscal responsibility. He said that it was the only small municipal school district on the school construction list to which the proposed bill would apply; therefore, the impact of the proposed bill was minimal to the state but very important to the school district. 8:45:31 AM MR. HERBERT explained that municipalities which had bonding capacity were eligible for reimbursement up to 70 percent of construction expenses. He pointed out that the group of REAA school districts now had access to funds for school construction due to Kasayulie, with an equitable formula of funding with the municipalities. He opined that, as Saint Mary's City School District was surrounded by REAAs, it made sense for it to be included in the funding mechanism. He declared that the St. Mary's City School District had demonstrated its ability to provide quality education in Rural Alaska, and ensured that its students would become productive, contributing citizens. He urged the passage of proposed HB 133. 8:47:41 AM REPRESENTATIVE REINBOLD commented that Anchorage had an excess of elementary school space due to the 70 percent reimbursement for school funding, and that property taxes were "taxed to the max." She asked if the current mandatory contribution would no longer be required if the proposed bill passed. She said that she was "a huge believer that the community needs to have skin in the game. They need to help develop the resources and jobs around them." She asked for a statement of support from the community that it would work with the Legislature to sustain the schools. MR. HERBERT replied that proposed HB 133 had no impact on the required mandatory annual local contribution, which was currently about $35,000 in Saint Mary's. REPRESENTATIVE REINBOLD asked if this contribution was for one school and how much was the school budget. MR. HERBERT replied that that there was only one school and its budget was about $3 million. REPRESENTATIVE REINBOLD mused that this mandatory contribution was about 10 percent. MR. HERBERT explained that the mandatory local contribution rate was determined by the state. 8:49:59 AM REPRESENTATIVE LEDOUX asked why Saint Mary's City School District had initially been a part of the lawsuit, but was then not included in the settlement. MR. BEGICH explained that the REAA Fund was created by the Alaska State Legislature prior to settlement of the Kasayulie lawsuit, which had allowed for settlement by a consent decree that both parties would abide by this mechanism. He opined that all of the schools at the time should have been included, however the court had only named the top seven schools that were listed in the suit. MR. HERBERT added that these five school districts were in a unique situation which needed to be addressed by the legislature in order to create funding equality. 8:53:45 AM REPRESENTATIVE LEDOUX questioned the process of the five school districts' inclusion in the lawsuit and then removal from the settlement. She said "that just doesn't make any sense to me." 8:54:07 AM REPRESENTATIVE P. WILSON stated that she was "a real stickler for fairness," and she declared her support for the proposed bill. 8:55:18 AM BRUCE JOHNSON, Executive Director, Alaska Council of School Administrators (ACSA), said that David Herbert also served as the president of ACSA, and he expressed his agreement with the testimony regarding the need for a solution to this difficult situation for the five school districts. 8:56:04 AM CHAIR GATTIS closed public testimony. 8:56:13 AM REPRESENTATIVE SEATON said that the proposed bill would provide the opportunity for other major maintenance projects to be prioritized. 8:57:17 AM REPRESENTATIVE DRUMMOND stated her support for adding the small school districts; however, she expressed concern for the continued funding given the projected revenues. She questioned whether the reimbursement was, indeed, "guaranteed by law." 8:58:01 AM REPRESENTATIVE REINBOLD corrected her earlier observation, noting that Saint Mary's contributed one percent to the school budget. She emphasized that local communities needed to contribute more than this amount, and needed to create jobs and develop resources in the community. 8:58:48 AM REPRESENTATIVE P. WILSON moved to report HB 133, labeled 28- LS0509\A, out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, HB 133 was moved from the House Education Standing Committee.