HB 272-INCREASE BASE STUDENT ALLOCATION HB 273-INCREASE BASE STUDENT ALLOC. INFLATION 3:36:10 PM CO-CHAIR DRUMMOND announced that the final order of business would be HOUSE BILL NO. 272, "An Act relating to education; increasing the base student allocation; and providing for an effective date." and HOUSE BILL NO. 273, "An Act relating to education; increasing the base student allocation; and providing for an effective date." 3:36:42 PM REPRESENTATIVE HOPKINS moved to adopt the proposed committee substitute (CS) for HB 273, Version 32-LS1366\W, Marx, 2/7/22, as a working document. There being no objection, Version W was before the committee. 3:37:10 PM The committee took a brief at-ease at 3:37 p.m. 3:37:43 PM CO-CHAIR STORY, as prime sponsor, presented HB 273 via a PowerPoint presentation [available in the committee packet]. She talked about two areas in which the bill would make a huge difference: protecting services to children by keeping services in the classroom by ensuring fixed costs are increased with inflation, allowing school improvement plans to continue; and providing for stability and certainty desperately needed in K-12 education. She emphasized the stress of having to plan a budget before knowing what the funding will be. She said a known budget can create efficiencies and avoid the need for "pink slips." 3:42:10 PM CO-CHAIR STORY turned to slide 3, which highlights that HB 273: introduces inflation proofing to the BSA in the foundation formula; ties the growth of education funding to the consumer price index (CPI); and helps families and communities by offering steady and reliable funding to children's services. She said Ms. Svetlik would continue the PowerPoint. 3:43:46 PM ARIEL SVETLIK, Staff, Representative Andi Story, Alaska State Legislature, on behalf of Representative Story, prime sponsor of HB 273, directed attention to slide 4, showing projected inflation percentages and the fluctuation in changes of the percentage of the CPI. It shows the CPI of urban Alaska by calendar year (CY). She noted that CY 21 was at 4.88 percent, and in comparison, CY 20 was a minus 1.10 percent. Prefacing slide 5, she noted there was a 1.11 percent average inflation growth from CY 18-20, which is what Ms. Svetlik used in her calculation on slide 5, which uses that 1.11 percent to discover what inflation growth would be. She showed the figure: "5930 x 1.0111 = 5996." She discussed the other information on slide 5, which states that the BSA would increase by $66 per student, an increase of 1.11 percent; by averaging three years, the formula smooths out big swings in inflation; and by adding a lag year, school communities will know their allocation ahead of time, which helps them to craft their budgets and meet student needs. She explained a lag year means that instead of FY 23 - which happens in CY 22 - being gauged on CY 19-21, CY 21 would be removed, and the calculation would be for 2018-2019. 3:47:33 PM CO-CHAIR STORY emphasized the benefit of the three-year average and the lag year in providing certainty for schools to budget. She brought attention to slide 6 and, in conclusion, stated that a strong education system creates active and informed citizens and a bright future. She said Ariel would give a sectional analysis. 3:51:55 PM CO-CHAIR DRUMMOND noted individuals available for comment. She spoke about the benefit to businesses in having good schools nearby. 3:53:05 PM MS. SVETLIK gave a sectional analysis [available in the committee packet] which read as follows [original punctuation provided]: Section 1. Amends AS 14.17.470, adding a new subsection that adds inflation proofing to the base student allocation in the foundation formula. The base student allocation would increase every year, based on the average inflation of the three-year previous Calendar Years, accounting for an additional lag year, of the Consumer Price Index of Urban Alaska, as measured by the United States Department of Labor, Bureau of Labor Statistics. Section 2. Provides an effective date for the beginning of Fiscal Year 25 on July 1, 2024. 3:54:29 PM CO-CHAIR DRUMMOND invited Jim Anderson to testify. 3:55:29 PM JIM ANDERSON, Chief Finance Office, Anchorage School District, testified in support of HB 272 and HB 273. He directed attention to a handout he had provided [available in the committee packet], titled "ASD School Funding Since 2017," which showed a bar graph. He said the graph shows how the BSA has been supported by state "one-time" funds in FY 19 and FY 20, and with federal relief funds from FY 21 through FY 24. He explained the red line at the top of the graph depicts the BSA's inflationary increase, based on the consumer price index urban (CPIU) from 2017 through 2022. The rates from January 2022 to the end of 2024 are estimated based on a 2 percent steady inflation rate and reflect adjusted staffing levels based on projected student enrollment. He explained that the gray, light blue, and gold bars represent BSA equivalent funds that helped offset structural deficits. He discussed how ASD has, for the last six years, applied its balance, Alaska's one-time payments, and federal relief money to maximize educational opportunities. He discussed other changes necessary to fill gaps. He talked about the increase in inflationary costs even with declining enrollment. He explained that the one-time funds have been instrumental in avoiding layoffs but have not allowed the district to implement multi-year strategies to improve student outcomes. He offered further details. MR. ANDERSON explained that one-time funds hid from the general public the annual structural cost that has continued to grow since 2017, but without a fiscal solution, it will be readily apparent. He said ASD has taken measures to close the gap, for example by closing two schools, combining programs, merging schools into individual buildings, and reducing staff. He offered further examples and spoke about costs per student. In conclusion, Mr. Anderson emphasized that federal funds are running out and it is time to implement an inflation-proof BSA, because there is a need for multi-year strategies, not "one-year Band-Aids." He opined that HB 272 and HB 273 "certainly would accomplish that step." 4:01:37 PM CO-CHAIR DRUMMOND noted there are federal relief funds that must be funded by 2024, and she asked whether there would be "a larger gold bar in ASD's BSA" [on the bar chart]. MR. ANDERSON answered only if ASD continues struggling with the hiring of staff. He said he expects $5 million of $50 million to be rolled over. He stated further that he does not expect a significant amount of rollover. To a follow-up question regarding difficulty in hiring, he said the district would shift that money to different purposes. He described the shortages this year throughout the district. There were fewer students and, thus, $12 million less in revenue, and the vacancies offset that loss in revenue. 4:06:28 PM REPRESENTATIVE HOPKINS asked about support staff shortages. MR. ANDERSON said ASD is short about 30 part-time custodians, which means those working are working overtime. He related similar issues with bus drivers and using a system of "rolling routes" where certain routes had to be closed for three weeks at a time. He offered further examples, including food service and teachers' assistants. 4:09:19 PM CO-CHAIR STORY asked for Mr. Anderson's thoughts on the three- year rolling formula and lag year proposed under HB 273, and also about his remark about putting a Band-Aid on education funding. MR. ANDERSON responded that he thinks the three-year average is "probably the optimal way to figure out the BSA increases on CPI" because the CPIU fluctuates year to year. He said he thinks state management cannot react quickly enough to one-year CPI jumps. He emphasized that he likes the proposed three-year average. 4:11:33 PM CO-CHAIR DRUMMOND announced that the committee would continue with public testimony on HB 272 [opened during the hearing on 2/9/22], and she opened public testimony on HB 273. 4:12:01 PM DEBBIE CARY, Vice President, Kenai Peninsula Borough School Board, testified in support of HB 272 and HB 273. She spoke about increased costs throughout the state for fuel, utilities, supplies, and liability insurance. She said building maintenance is not being addressed. She said COVID relief funds have been used to support social-emotional learning (SEL), but those funds will run out. Ms. Cary noted that without the COVID relief funds, the district would be in a deficit of approximately $7 million. She talked about subjects, such as art, being dropped to accommodate other subjects, such as science, as a result of lack of funds. She emphasized that the district has been strategic in its management of funds in order to "keep as many dollars in the classroom" as possible. 4:15:06 PM MS. CAREY, in response to a question from Representative Prax, stated how the district addresses insurance issues, such as looking for ways to reduce healthcare costs. The district is always looking for ways to reduce the costs of supplies. She noted that Internet access is not available in some parts of the Kenai Peninsula. CO-CHAIR DRUMMOND said she has received e-mails from schools that state they are limited in the number of insurance providers in Alaska, so that limits the ability to shop around for a lower price. MS. CAREY confirmed that is correct and added that there is a limitation on the willingness of companies to respond to bids that take place too frequently. 4:18:03 PM FADIL LIMANI, Chief Financial Officer, Finance Office, North Slope Borough School District, read written testimony [included in the committee packet] in support of HB 272 and HB 273. He emphasized the challenge and negative effects to students and schools resulting from the pandemic and the need to employ as many financial resources as possible. He reported the district has [a drop in its numbers by] approximately 200 students, a significant decrease in its typical ADM, and that reduces the BSA significantly. Further, he said the district anticipates a drop in local funding for the 2023 budget, the current deficit projected for FY 23 is approximately $7.9 million. He emphasized the importance of stable funding. He said there is a shortage of teachers who are able to come to the North Slope Region to teach; the district is no longer able to attract and retain teachers with pay and benefits; and teacher turnover has a direct negative impact on student performance. MR. LIMANI spoke about the interrupted supply chain and the effect of prices that are even higher in the region. He expressed a need for awareness about the diminishing value of flat funding. He talked about the increase in utilities and aging infrastructure of schools. He expressed gratitude for the funding from the CARES Act; however, those funds cannot be used to supplement the constitutionally required funding of public education. He said while the proposed legislation may not address all the needs of the district, it would move in the right direction of allowing the district to be able to offset some of the fiscal shortfalls to come. 4:22:35 PM MR. LIMANI responded to a series of questions from Representative Prax. He clarified that student enrollment had hovered around 2,000, and the last count in FY 23 was 1,844. Some of the students transferred to other school districts, while others "just dropped out." He explained that [access to] broadband has been an issue in terms of affordability and providing access for Zoom connections for classes, and the district does not have the staffing necessary to offer "a hybrid model" to provide "distance delivery." He said the district expects some of those students to come back, but not a number certain. 4:25:49 PM MR. LIMANI, in response to a question from Co-Chair Drummond, said the district serves eight villages. To a follow-up question, he said the only two villages to and from which a person could drive are Prudhoe and Nuiqsut, and then only in the winter. In response to Co-Chair Drummond mentioning another piece of legislation not on the agenda, Mr. Limani expressed his thoughts on school bond debt reimbursement. 4:28:39 PM MR. LIMANI, in response to a question from Representative Hopkins, talked about progress following a school in Kaktovik burning down. 4:32:00 PM RACHEL LORD, representing self, testified in support of HB 272 and HB 273. She noted that she and her husband are business owners, and she emphasized the importance of education in producing a strong workforce. She said society pays for underfunded education in a variety of ways, including: healthcare, justice, policing, unemployment, and child protective services. She stated, "Reasonable, rational funding and predictable funding for schools is a foundational step to maintain community-level support for kids and keep them on the right path." She expressed strong support for state funding of schools in Alaska that keeps up with inflation. She spoke of the challenges schools have in covering utilities, health insurance, and other fixed costs. She touched on the state's responsibility and constitutional obligation to provide education to Alaska children, and she emphasized the need for funding in order for that to happen. She asked the committee to support both HB 272 and HB 273. 4:36:30 PM KATIE BOTZ, representing self, testified in support of HB 272 and HB 273. She stated that as a school bus driver and aunt to several nieces and nephews, she is concerned about the multi- year flat-funding of education, because she wants a better future for them. She expressed concern about the mental and emotional health of students upon graduation after experiencing the pandemic. She asked the committee to fully fund education and stop flat funding, and to put children's futures first. 4:38:28 PM CO-CHAIR STORY thanked Ms. Botz for the service she provides as bus driver. 4:39:00 PM DAVID BOYLE, representing self, listed the current funding for four of the five largest school districts in Alaska and noted that the funding formula multiplies the BSA. For example, he said the 4,200 student input to the foundation formula comes out to 7,200; the $5,930 BSA ends up as $7,732 per student; and "the proposed $233 increase goes to $306." He quoted Superintendent Deena Bishop as having said recently, "We have enough funding." He stated that fixed costs are not the driver of education costs, rather that personnel costs are. For example, he said that personnel costs for the Anchorage School District make up 88 percent of total costs. He concluded, "We need to improve education, but this is not the way to do it." 4:41:13 PM ROBYN BURKE, Clerk, North Slope Borough School District Board of Education, North Slope Borough School District (NSBSD), testified in support of HB 272 and HB 273. She echoed the previously made point that 2017 was the last time there was an increase [in funding to education] and offered her understanding that "there's a ten-year projection." She acknowledged the statement of the previous speaker about 88 percent of budget going to personnel, and she noted that a majority of NSBSD's expenses are directed to personnel; however, she said the district has a problem with recruitment and retention of teachers and loses teachers for reasons based on [lack of] funding. She said the district has not finalized its budget for next year, so it does not yet know what positions may need to be cut. She said the district loses one quarter of its teachers each year. She talked about meeting demands when there are shortages in support staff. Ms. Burke mentioned the high cost of broadband that families needed to use to remain connected with education for their children during the pandemic. She noted there are costs unique to the remoteness of the district, for example, paying the cost of flying other school teams to compete against theirs. She expressed hope that the district would have fiscal security to ensure the future of its students. 4:46:36 PM MS. BURKE, in response to a question from Representative Prax, talked about ideas for solving the teacher retention problem. She said that in talking with the union, one idea produced was to offer retention bonuses. She talked about reimbursement of ticket prices for flights to and from Utqiagvik. She said she could not "put a number or a figure on how much more money" [would solve the retention problem]; she indicated the issue is not knowing what to expect when trying to budget for the school year. 4:49:12 PM MR. LIMANI added that the district is currently undergoing negotiations with administrators, and negotiations with teachers would commence soon. He stated that housing is a problem in remote Alaska, thus the district provides housing, and there has been "an increase to our leasing units" while "the rates on those housing units have not changed." He said the district has not conducted a study on benefits or cost of living in some time, so many of the rates have remained stagnant. He listed some other things provided by the district: Internet, cell phone, vehicle, and travel out of state for professional development. 4:51:05 PM MS. BURKE added that 48 percent of the district's teachers have said they do not expect to remain in the district longer than two to three years. 4:51:58 PM MS. BURKE, in response to a question from Representative Hopkins as to what cuts the district has had to make that have impacted student engagement, said as a whole the budget for each of the schools has been decreased for "added duty contracts." She said cuts have been considered for Pre-K and sports, and cuts have been made in areas including administration and technology. She noted that cuts outside the classroom do have a negative effect on the classroom. REPRESENTATIVE HOPKINS acknowledged the team effort in schools and thanked Ms. Burke for her work. 4:56:07 PM MR. LIMANI added that in 2019 the local appropriation was reduced by approximately 10 percent, about $3.3 million. All cuts were made in central operations. He said the district has not been able to rebound from that. Now, he said, the district is being fiscally conservative and focusing on that which will benefit the students. That said, projections for upcoming years show that the district will have a difficult time absorbing the budget gaps. He said the district hopes to use some of its fund balance to offset that, but the proposed legislation would help "alleviate some of those fiscal pressures." 4:58:16 PM MR. LIMANI, in response to Representative Cronk, acknowledged "for the most part" that the BSA is a set amount of money that is received by the district each year; however, the underlying influx is student enrollment, which fluctuates. He reiterated the number of students had decreased by about 200. In response to a follow-up question, he reviewed that some of the students had dropped out while others had transferred to other districts, and he estimated some may come back. He relayed that the district's student advisory council had told the district it should expect to see an increase in the head count for the second semester. 5:00:27 PM CO-CHAIR DRUMMOND offered her understanding that the children who come back to a district the second semester would not have been counted at the beginning of the school year toward the district's funding. Further, the hold harmless is in place, so the district is still getting funding for those students but may not have the teachers for them. MR. LIMANI responded that is correct. 5:01:22 PM DIANE HIRSHBERG, Director and Professor of Education Policy, Institute of Social and Economic Research (ISER), specified that she was speaking in her role as researcher rather than administrator. She stated that a few years ago ISER conducted studies which she offered to return to discuss. That said, she proffered that salary is only a piece of the story in terms of retention. The other factors include access to health care, the distance to travel home to see loved ones, and working conditions. To the last factor, she noted that there are teachers who are given "dry cabins" in which to live, with temperatures falling to 40 degrees below zero Fahrenheit. She described the challenges of this scenario. MS. HIRSHBERG, regarding the description of the BSA as a known quantity, said it is, but she quantified that the geographic cost differential numbers have not been updated for many years; therefore, it is not known whether the money is being distributed as it should. She stated that these questions would not be answerable without more empirical data and a manner in which to keep that data updated. 5:04:42 PM CO-CHAIR STORY asked if she was interpreting ISER's study correctly in thinking that when adjusting for cost of living and geographic cost differentials, "our money" is worth $12,000, just under the national average; therefore, although "we are giving the same amount of ... BSA, we have less buying power," and fixed costs increase, "and so that money is ... worth less." MS. HIRSHBERG confirmed that was a correct interpretation. She said there is a geographic cost differential that tries to provide equity for the higher costs being faced in some regions, but whether [the state] is keeping up with those different costs is unknown, particularly because of rapid cost changes. She said there are "some big hits" that have occurred. She stated, "We were hearing very similar stories from districts that energy costs from districts were so volatile that when the legislature raised the BSA, ... all that money went right to energy costs, and the schools were not able to increase teacher salaries or invest in other ways to make teaching in our districts more successful and more attractive." 5:08:24 PM CO-CHAIR DRUMMOND thanked Ms. Hirshberg. After ascertaining that there was no one else who wished to testify, she closed public testimony on HB 272 and HB 273. 5:09:38 PM CO-CHAIR DRUMMOND announced that HB 272 and HB 273 were held over.