HB 73-INCREASE AMT OF BASE STUDENT ALLOCATION CHAIR NEUMAN announced that the next order of business would be HOUSE BILL NO. 73 "An Act increasing the base student allocation for state financing of public schools; and providing for an effective date." 11:40:31 AM MR. JEANS explained that HB 73 would increase the base student allocation for a two-year period. The first increase would take effect in the fiscal year (FY) 2006 budget cycle and would increase the base student allocation from $4,576 to $4,880. In FY 07, the bill requires a second adjustment that would increase the base student allocation to $5,190. The first-year costs associated with increasing the base student allocation would be $62 million for FY 06 and $64 million for FY 07. He mentioned a fiscal note, included in the committee packet, for the military youth academy, and explained that its funding is tied directly to the base student allocation. The fiscal note shows that the increased grant would be $425,000 in FY 06 and $433,000 in FY 07. Mr. Jeans pointed out that the governor's funding proposal does have a companion bill, HB 65, which would make the appropriations for K-12 support. REPRESENTATIVE WILSON inquired as to how the increased amount was determined. 11:42:54 AM MR. JEANS explained that the increased contribution of school districts to Public Employee's Retirement System (PERS) and Teachers' Retirement System (TRS) will be $38 million statewide and the governor wanted to provide additional funding for ongoing operational costs. Therefore, [the department] averaged the Anchorage Consumer Price Index (CPI) for the last three years and came up with 2.47 percent. This percentage was applied to the foundation program, and the cost associated was $24 million. The total amount summed $62 million. REPRESENTATIVE WILSON asked what happens if a school loses ADM. MR. JEANS stated that if a school has fewer students, it will receive fewer dollars and staffing adjustments will be necessary. REPRESENTATIVE THOMAS inquired as to Anchorage's $10 million shortfall, and the proposed increase request. MR. JEANS clarified that the Anchorage initial budget shortfall was $30 million of which the governor's proposal would provide $20 million. He stated that this was the starting point and the numbers have yet to be refined. 11:46:28 AM REPRESENTATIVE GARA described his involvement in attempting to figure out the impact of the governor's budget on various school districts. He said the preliminary assessments show that many school districts are somewhat held harmless by the budget compared to last year. He asked, "What is causing so many of these school districts still to fall behind?" MR. JEANS replied that this is a product of the budget process at the local level in trying to determine the district's needs. The governor's budget proposes to increase the foundation program, to offset the increases for PERS/TRS, and provide an almost 2.5 increase for operational costs. REPRESENTATIVE GARA stated that he would like to do something more than just hold schools harmless to where they were last year. Last year schools were held harmless to the prior year, when they essentially lost money. He said that he would like to add staff in a way that could make a meaningful difference to schools. He asked if the administration would consider that. He also asked if Mr. Jeans could provide some suggested efficiencies to control cost growth. MR. JEANS said that he could not respond. 11:50:12 AM ANNE KILKENNY stated that there are different needs in different districts because of the adjustments that are not made in the foundation formula. The foundation formula only makes four or five adjustments. She said that the foundation formula does not make adjustments where student enrollment is decreasing and so, the cost per student increases. The aforementioned is the situation in Kenai. She related situations in which property values rise and cause local required contributions to increase but this, in turn, decreases state contributions, as is the case in Anchorage. Therefore, certain areas have greater need than others. MS. KILKENNY discussed that schools that are designed for specific numbers of students cannot operate efficiently or cost effectively if the student populations rise. She provided an example in the Mat-Su Valley, and noted that even the governor's proposal may be inadequate for the Mat-Su Valley. She expressed her belief that, "a refinement of the Anchorage school district budget would mean a diminishment of the quality of education in that district as it would in the Mat-Su, as it would in Kenai, as it would in Ketchikan, Petersburg, North Slope burrow, and every other district that has indicated that even the governor's proposal is inadequate for this simple maintenance of the status quo." [HB 73 was held over.]