HB 135-SCHOOL CONSTRUCTION GRANT PROGRAM 8:36:58 AM CHAIR DRUMMOND announced that the next order of business would be HOUSE BILL NO. 135, "An Act relating to school district participation in the school construction grant program." 8:37:17 AM REPRESENTATIVE DEAN WESTLAKE, Alaska State Legislature, introduced HB 135 paraphrasing from a prepared statement, which read as follows [original punctuation provided]: HB 135 will allow the Commissioner of the Department of Education to grant time extensions to school districts raising their percentage share of project costs appropriated through the "Educational facilities maintenance and construction fund" (as outlined under AS 14.11.008 "School district participation in grant program" for appropriations made under AS 37.05.560). Currently, school districts are required to raise the percentage share of the total project cost within 3- years of appropriation approval. However, since the adoption of the 3-year time constraint in 1993, multiple projects have required more time to raise their required percentage share. The more recent examples of projects that have required more time include, but not limited to, projects within the Yukon Flats School District, Northwest Arctic Borough School District, Yupiit School District and the Kenai Peninsula Borough School District. According to the Department of Education & Early Development, the 3-year time lapse is appropriate for about 95% of approved projects. However, there's about 5% of the projects that could utilize a time extension when faced with extenuating circumstances outside of the school districts' control. The Kivalina Replacement School project is one example of why a provision for extensions is needed. In FY2015 the State appropriated $48,958,120 for the project State Share funding, and the participating share amounted to $12,239,530, for a total EED Recommended amount to $61,197,650. However, the grant agreement has not yet been executed for reasons beyond the control of both the Borough and District. First, for FY 2016 a moratorium was placed on approval of the grant pending legislative consideration of the balance of funding [does it need further explanation on the moratorium?]. Secondarily, the project cannot begin until the access road is constructed as a separate project. The road development is proceeding in conjunction with DOT/PF, but it is not scheduled to be completed before the three-year deadline expires. Without an approved grant agreement, it is difficult to apply for other grant funds that could be used towards the local share. Furthermore, if the Borough and School District cannot apply for an extension, there is potential that a critically needed school project might be forced to forfeit the previously appropriated State funds when all that is needed is more time to secure additional matching sources. In this case, if HB 135 is passed, the Northwest Arctic Borough could apply in writing to the Commissioner to request an extension. If the Commissioner decided that the project demonstrated good cause to for the requested extension, then the Commissioner could grant one. REPRESENTATIVE WESTLAKE named projects that fall within the 5 percent category, which are: Tuluksak School improvement, Hoonah major maintenance, Arctic Village soil remediation, Kivalina replacement school, and Kachemak Selo new K-12 school facility. 8:41:18 AM REPRESENTATIVE JOHNSTON asked what the current balance is for the outstanding 5 percent, and how many of the schools were part of a judicial decision [Kasayulie v. State of Alaska]. REPRESENTATIVE WESTLAKE said he could provide further information regarding the outstanding 5 percent, and he clarified Kivalina School was part of a lawsuit settlement. REPRESENTATIVE JOHNSTON inquired as to whether the Kivalina School project includes infrastructure [access] to the school as well as the school building. REPRESENTATIVE WESTLAKE advised a separate project is the infrastructure road being handled by the Department of Transportation & Public Facilities (DOT&PF). REPRESENTATIVE KOPP surmised that the access road that is needed has delayed the replacement of Kivalina School. REPRESENTATIVE WESTLAKE concurred and said the road must be completed prior to the school being rebuilt, and the road project is outside of the school district's control. CHAIR DRUMMOND questioned whether construction can begin on a school prior to having the local share in hand. REPRESENTATIVE WESTLAKE deferred comment to the mayor of the Northwest Arctic Borough. 8:43:56 AM ANNMARIE O'BRIEN, PhD, Superintendent, Northwest Arctic Borough School Board (NWABSD), stated support for HB 135, paraphrasing from a prepared statement, which read as follows [original punctuation provided]: The Northwest Arctic Borough School District wholeheartedly endorses House Bill 135, a bill addressing the participation in the school construction grant program allowing the Commissioner of Education to grant an extension of the time limitation for the identification of the required local participating share of grant funding. Currently, the statutes require that the local match be identified within three years of the approval of the legislative appropriation of grant funding. There is no provision for the consideration of exceptional circumstances that warrant additional time to secure the match. This bill recognizes that such situations may occur from time to time and allows Boroughs and Districts to justify and petition the Commissioner for an extension. Without such an extension, there is a potential that a critically needed school project might be forced to forfeit the State appropriation when all that is needed is more time to secure additional local funding sources. The existing State regulations for administration of the school construction grant program protect the State's interests and assure the local match is provided. The Department releases grant funding to recipients only after specific milestone conditions are met. The payments are a percentage of only the State share of the project amount and in addition, 5% of the state share is withheld until the source of the local match is identified. There is not a danger of the State over reimbursing a project. Not only is the State facing restricted funding, so are local governments. Incorporating some flexibility into the provision for local match will allow local governments more time to fund their share of the cost of a greatly needed school facility upgrade. Admittedly, the Northwest Arctic has a project that would benefit from this bill and the Kivalina Replacement School project is a perfect example of why a provision for exceptions is needed. In April 2015, the legislature appropriated partial grant funding for the Kivalina Replacement School. At that time the clock started ticking to secure the local share. However, the grant agreement has not yet been executed for several reasons beyond the control of the Borough and District. For FY 2016 a moratorium was placed on approval of the grant pending legislative consideration of the balance of funding. Another complication is construction of the project cannot begin until an access road is constructed as a separate project. The road development is proceeding in conjunction with DOT/PF [Department of Transportation & Public Facilities], but it is not scheduled to be complete before the three-year deadline for the match expires. Without an approved grant agreement, it is difficult to apply for other grant funds that could be used as part of the local share. House Bill 135 will delegate to the Department discretion in extraordinary circumstances to allow projects such as Kivalina Replacement School to move forward without the potential of having to forfeit appropriated funding, and to continue managing risk to the State and local entities and support the improvement of educational conditions for the children of Alaska. 8:48:42 AM REPRESENTATIVE JOHNSTON noted Northwest Arctic Borough School District (NWABSD) has been undergoing a methodical rebuilding of the school facilities begun in the 1990s or 2000, and asked if this is the final rebuild project. DR. O'BRIEN replied yes. REPRESENTATIVE JOHNSTON asked for the percentage of the average local participation match funding. DR. O'BRIEN replied the borough-required match is 20 percent. CHAIR DRUMMOND expressed concern that because of the delay, the project will cost significantly more, and thus the school project, as well as school programs, may suffer. DR. O'BRIEN said it's hard to consider the full effect of inflation on a project that has been delayed. However, the needs of the students attending Kivalina School are paramount to funding issues. The school is in poor condition and the district makes the best effort with the existing facility. She pointed out as the delay continues, energy efficiencies and new construction methods are becoming available. REPRESENTATIVE JOHNSTON asked for the student population at Kivalina School, and for the number of students who graduated in 2016. DR. O'BRIEN answered 160 students are enrolled in grades K-12, and deferred response on the number of graduates. CHAIR DRUMMOND said the legislature has been concerned about Kivalina School for at least five years and asked for an update on the current project schedule. DR. O'BRIEN said the completion of the road is indeterminate, but once construction of the road is complete, school construction can begin, and that is expected to be completed within two years; with the road construction estimated at three years, a five-year timeframe is anticipated in the best circumstances. 8:53:55 AM MIKE NAVARRE, Mayor, Kenai Peninsula Borough, said as currently drafted, HB 135 doesn't directly affect the Kenai Peninsula Borough at this time, but he expressed support for the bill's intent. Mayor Navarre recalled last year the borough received a legislative grant in the amount of $10 million to build a school in Kachemak Selo, which is a small community located at the terminus of East End Road. Access to the school is not legal access because of switchbacks and the steep grade of the road, thus the borough is exploring options on where to build the school. The bill would allow the commissioner, for good cause, to provide some flexibility [in the school construction grant program] for issues such as looking at school population trends. Mayor Navarre said additional flexibility for good cause makes good sense. Regarding the percentage of the match, which is 35 percent for the Kenai Peninsula Borough, he cautioned that due to the economic contraction and the fiscal situation in Alaska, the amount of the match is a challenge for local governments to achieve. He noted the borough seeks to find a successful model that can be applied for all local governments with remote schools throughout the state. Mayor Navarre related in 1991 there was a recommendation to relocate Kivalina because the village was being eroded by the ocean and the river; Kivalina is the best demonstrated case that HB 135 may prevent a local government from rushing to find the funds to preserve a grant, instead of finding the most rational and fiscally responsible solutions. 8:57:39 AM REPRESENTATIVE JOHNSTON asked the mayor if, given a choice, the borough would prefer the $10 million designated for the school, for education, or for other capital projects. MR. NAVARRE responded that the reality of budget priorities must be faced. He described the existing student housing in Kachemak Selo as deficient and inadequate, and reluctantly suggested that for this community, correspondence education may be the best option, or perhaps a change to the grant in order to build a multi-purpose building to also serve as a school. He acknowledged funding education is a dilemma for the borough and the state and expressed his support for education. CHAIR DRUMMOND asked if Kachemak Selo is located at the head of Kachemak Bay. MR. NAVARRE said yes, adding the village is situated at the end of East End Road and across tidal flats. The village was built in a difficult area due to its topography and soil conditions; in fact, to build a road would cost about $15 million. CHAIR DRUMMOND surmised that busing is not an option. MR. NAVARRE concurred and said a gondola was considered but that option was also ruled out - there are no easy options. 9:02:28 AM CHAIR DRUMMOND, after ascertaining no one else wished to testify, closed public testimony on HB 135. [HB 135 was held over.]