SENATE BILL NO. 36 "An Act relating to transportation of public school students; relating to school construction grants; relating to the public school foundation program and to local aid for education; and providing for an effective date." SENATOR RANDY PHILLIPS, (TESTIFIED VIA TELECONFERENCE), ANCHORAGE, testified that Alaska's public school foundation formula is broken and needs to be fixed this year. Alaska's five largest school districts serve almost 75% of Alaska's students. These five districts receive 57% of the State general fund support in the foundation program. The remaining school districts, which serve 25% of school age students, receive 43% of the State aid for operating schools. At the same time, the five largest school districts contribute approximately 72% of local tax revenue which goes to operating schools in Alaska. The current formula provides neither education equity for students nor taxpayer equity between school districts. For the past ten years, State funding for public schools in Alaska has been distributed, based on a formula that provides a disproportionate share of funding to small rural school districts at the expense of larger districts. Senator Phillips pointed out that the current formula makes size adjustments by gathering students into "instructional units" within "funding communities", and makes geographical cost adjustments based on household cost of living differential between school districts. Alaska is only one of seven states that use instructional units instead of a per student allocation. In the Alaska School Operating Cost Study (McDowell Report) provided for the Legislative Budget and Audit (LBA) Committee determined that the definition of "funding communities" is not consistent. He suggested that costs could better be compared at the school level. SB 36 would adopt the changes recommended in that report. Senator Phillips stated that there are two major components to the cost of providing school education which must be accounted for in any formula that seeks to provide equity in funding between school districts. Instructional costs (approximately 70% of spending) consisting primarily of teacher's salaries, vary based on the size of individual schools. Administrative and non-personal service costs (such as supplies, books, utilities) vary, based on the size of a district, the district's location and the unique circumstances of that district. Senator Phillips continued, SB 36 distributes school funding based on the actual costs of providing instruction to students and the actual current costs of operating school districts. ? Funding is allocated based on a per student rather than an instructional unit value. The public is better able to understand a per student than a unit value. ? Size adjustment in formula is based on individual schools instead of "funding communities". ? Adjustments for geographical cost differences are based on a study of the actual costs of operating school districts instead of the household cost of living. ? The required local contribution for municipal districts is set at four mills of assessed value or 100% of district State support. Taxpayer equity would be improved. ? Categorical funding is set at 20% of State support plus funding for intensive-need students, which will remove any incentive in the current formula to identify students as special-ed in order to qualify for additional funding. ? Funding for statewide correspondence study programs offered by a district are set at .65 times Average Daily Membership (ADM), the same as the State operated program. At least one school district has several times as many students enrolled in their statewide correspondence program that live in their district. The provision is intended to prevent districts from being in the business of providing programs to finance their operations. ? Provides reimbursement for district operated pupil transportation at 90% of actual cost. Currently, districts that contract for their school buses are reimbursed 100% of their costs. The Anchorage School District is reimbursed for only 66% of its bussing costs. ? Districts are required to spend at least 70% of school funding on instructional costs. The Education Week "report card" distributed earlier this year, criticized Alaska for spending too much money on school administration and not enough on instruction. In Alaska, approximately 70% of public school funding is spent on instruction. Some districts spend about 75% on instruction while others are spending closer to 39%. Senator Phillips concluded, the changes proposed in SB 36 to Alaska's public school foundation formula would benefit school districts that serve 84% of Alaska's children. SENATOR GARY WILKEN provided an overview of a handout, SB 36 - A Proposal to Bring Simplicity & Fairness to the Way Alaska Funds Its Public Schools. [Copy on File]. He stated that since 1988, State of Alaska General Fund dollar support to the public school Foundation Formula has increased 54.3%. At the same time, the number of public school students to be educated in Alaska has increased 27.9%. Senator Wilken provided a historical review of public school funding. In 1985, there was a one-year stopgap- funding scheme adopted. In 1986, a re-write proved impossible which was another one-year solution. In 1987, after two years of different stopgap measures, a new proposal was considered. Then in 1987, as a result of several years of turmoil, a new proposal was adopted, even though that legislation would be a "further setback" for Railbelt taxpayers and students. In 1998, SB 36 proposes a funding formula that is based on actual school costs and that is fair. Senator Wilken referenced the Alaska Education Survey. [Copy on File]. The survey found that only one in three Alaska voters believes that significant increases in education funding would improve the quality of education. He noted that the survey indicated that 81% of voters believed that the State's method of funding schools should be simplified and that 73% of voters support funding education based on an amount per student, with additional amounts added for special needs, rather than the current method used addressing the instructional unit. He pointed out that the Governor acknowledged this need and submitted SB 85, introduced 2/12/97. Page 5 of Handout #1 provides an analysis of SB 85 and SB 36. Senator Wilken stated that SB 36 would consist of three major efforts: ? Bases the formula on the actual cost of operating a school. (McDowell Study) ? Converts from an "instructional unit" basis of funding to a "student dollar". ? Would define a "fair share" for the organized areas of the State. (4 mills or 100%) SB 36 would address simplicity, fair share contribution, categorical definition without verification and classroom funding priority. Senator Wilken pointed out that the legislation would not address the unorganized areas of our State Rural Education Attendance Area (REAA) contribution toward education. Senator Wilken defined "fair share" as equal funding participation by all districts based on assessed value of an organized area. The assessed value would be used as it provides an "arms length" relative evaluation of the wealth or lack of wealth in a community; validated by an objective civic and judicial process at no cost to the State. It would be readily available from organized governments and it could rise and fall annually. Senator Wilken continued, Page 23 illustrates REAA wages and employment with a total estimated wage around $460 million dollars. The 1996, State support to REAA's was $135 million dollars. He suggested that was 28% of the budget for 8% of the students. Senator Wilken urged that those people be required to make a contribution toward education. Page 25 addresses categorical funding, i.e. monies identified through the foundation formula for special education needs such as gifted and talented, bi-lingual, bi-cultural, and vocational education. In the current formula, the school districts define and count funding needs, creating the instructional unit. That unit is then funded, although, audits are minimal and districts are not required to spend the money for categorical needs. Senator Wilken distributed a copy of an additional handout, The Result of the Legislation. [Copy on File]. He acknowledged that the makers of the legislation do recognize that there are different costs associated with educating children in different parts of the State. SENATOR JOHN TORGERSON spoke to the 70% instructional unit cap contained in the bill. SB 193 was introduced, which placed a cap on the amount to be spent in both district and for school administrative costs. The calculated average was $950 dollars per student, a cost which was multiplied by the area cost differential. That legislation would switch approximately $21 million dollars from the administrative area back into the classroom. When the McDowell Report was issued, they recognized that 70% of the cost was being used for instruction and that an area cost differential did not exist for that particular segment of the budget. Senator Torgerson recommended that school districts be consolidated and that administrative costs be reduced. An administrative cap could control the amount of money used for student allocation. The 70% amount became the final number agreed upon through recommendation by the McDowell Report. Senator Torgerson pointed out that 92% of the Alaskan people who pay for education receive 79% of those monies. The 8%, who do not pay, receive 21% of the education money. The question posed is how to require that 8% to pay. Many considerations have been proposed in how to make the non- paying areas contribute. He advised that the Senate Leadership has decided to proceed with SB 337, the mandatory borough issue, which will make it mandatory in the formation of third class boroughs, leaving out the single sites to require a local contribution to education similar to that made by the borough. Senator Wilken acknowledged that there continues to be a few concerns regarding the proposed legislation. The Department of Education (DOE) needs to help define what a "school" is; also, the North Slope Borough concern must be addressed. He urged the Committee's cooperation to help move the education concern beyond the status quo. Representative J. Davies questioned if the need would be determined by the assessed valuation. Senator Wilken agreed that the issue is complicated. If a community derives revenue from which they support their community, with one tax base, their expenses should also be derived off that same tax base. Representative Grussendorf pointed out that the overview does not address "quality" schools. Senator Wilken replied that the school districts applied pressure to remove that stipulation since it was an unfunded mandate. He pointed out that language regarding that concern had been reinserted into the bill in the version forwarded by the last Committee's actions. (Tape Change HFC 98- 90, Side 2). Senator Torgerson commented that the total for "quality" school funding was now at $2.2 million dollars, and that Representative Bunde's amendment was for $500 thousand dollars. Representative Grussendorf responded that the $2.2 million dollars was only enough for development of the plan and would not cover the implementation. He estimated that the package would cost approximately $23 million dollars. Representative Grussendorf questioned the 70% minimum expenditure for instruction. He suggested that amount could probably work for a larger population area, but with the high fixed costs in rural areas, it would cause problems. Senator Torgerson replied that the administrative cap was contained in an additional piece of legislation, accompanied by a waiver requirement to address the 70% issue. He noted that if the 70% concern could be achieved, it would put $40 million dollars back into the classroom. The waiver would first need to be submitted to the Board of Education for consideration and then it would move to the Legislative Budget and Audit (LBA) Committee in report form. RICHARD CROSS, DEPUTY COMMISSIONER, DEPARTMENT OF EDUCATION, referenced a letter written 4/2/98 addressing the Department of Education's (DOE) concerns with the proposed bill relating to the public school funding program. [Copy on File]. ? Amendment #2 would impose a 3% wage tax for employment within the unorganized borough. The Department is seeking direction from the Committee as to what tax revenue estimates should be used in developing updated spreadsheets incorporating the amendment. ? The local contribution requirement has raised issues regarding the taxable full value of the North Slope Borough (NSB). The Department of Community and Regional Affairs (DCRA) is determining the appropriate and taxable full value of the NSB to be used in calculating required local efforts. Resolution of the issue will impact the amount of funding available for redistribution under HCS CSSB 36 (HES). ? Page 14, Lines 19-31, and Page 15, Lines 1-2. Requires that the Department develop a comprehensive assessment system. The requirement mirrors language in the Governor's quality school bill, HB 351/SB 257. The fiscal note for those bills would amount to $3.6 million dollars to develop a system and would include an additional $20 million dollars to assist school districts with the cost of implementing the assessment program. ? Page 5, Lines 6-9. Requires districts to have on file with the Department, a plan of service for special education, gifted and talented education, vocational education, and bilingual education. It is the Department's understanding that these would not be required in order to receive the 20% allocation. The Department believes further clarification of this language is needed. ? Page 6, Line 10. The school size table is very aggressive in applying multipliers for adjusted ADM. Depending on the definition of "school", Mr. Cross stated that the table raises many issues. ? Page 6. The current foundation program has a three year hold harmless for school districts that experience a drop in enrollment of 10% or more from one year to the next. The proposed legislation does not contain a similar safety net. ? Page 8, Lines 19-23. That would require the Department to adjust district cost factors by the Anchorage Consumer Price Index (CPI) and submit proposed district cost factors to the legislature every other year. The Department contacted the McDowell group for advice in meeting the requirement. The group stated that the Anchorage CPI has no relationship to district cost factors and that inflationary adjustments should occur elsewhere in the legislation. The McDowell group also indicated that DOE could not apply the same methodology they used in determining the proposed district cost factors to meet the requirement in SB 36. The McDowell Report did provide additional information to the Chairman of the House HES Committee to suggest alternative methodology. ? Page 10, Line 5. References minimum expenditure for instruction. Most districts can not meet the requirement due to fixed costs to operate facilities. Only school districts with large student population and the larger schools can meet that requirement. ? Page 11, Line 2. The definition of "instruction component" is inconsistent with the existing chart of accounts. ? Page 27, Line 12. Subsection (b) requires the Department to define "school". Current regulation 4 AAC 05.900(5) defines a school as a "program of instruction". There is a lack of data to support a consistent definition of "school". As the definition is clarified, a significant reallocation of dollars will occur. ? Page 27, Lines 14-17. Transition for proposed district cost factors, requires the Department to submit to the Legislature, proposed district cost factors by January 15, 2001. As previously stated, the McDowell group informed DOE that their methodology can not be used to update proposed district cost factors. ? Page 16, Line 12. This section would remove the requirement to employ a chief school administrator. If districts hire a non-certified administrator to run the school district, the administrator would not be subject to the ethic requirement of the Professional Teaching Practices Commission (PTPC). Mr. Cross concluded his testimony and offered to answer questions of the Committee. SB 36 was HELD in Committee for further consideration. (Tape Change HFC 98- 91, Side 1).