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." Representative Mulder MOVED that work draft #0-LS0070\J, Ford, 5/8/98, be the version before the Committee. [Copy on File]. There being NO OBJECTION, it was so ordered. Co-Chair Therriault MOVED to ADOPT Amendment #1. [Copy on File]. EDDY JEANS, MANAGER, SCHOOL FINANCE SECTION, DEPARTMENT OF EDUCATION, explained that the amendment would add money appropriated for single site funding to the base in order to calculate the funding floor. There being NO OBJECTION, it was adopted. Co-Chair Therriault MOVED to ADOPT Amendment #2. [Copy on File]. Mr. Jeans explained that Amendment #2 would add a transition section defining "basic need" for the purpose of calculating the required local effort. For some school districts, local effort requirement will be 45%. There being NO OBJECTION, it was adopted. Co-Chair Therriault MOVED to ADOPT Amendment #3. [Copy on File]. Mr. Jeans explained that Amendment #3 would allow the pro-ration of the quality school grant funds. Co-Chair Therriault added that these schools would be treated the same way, noting that the pro-ration formula which also applies to the general formula. Mr. Jeans commented the action would delete "competitive" before "grant". There being NO OBJECTION, Amendment #3 was adopted. Co-Chair Therriault MOVED to ADOPT Amendment #4. [Copy on File]. Mr. Jeans commented that Amendment #4 would delete the language which the Department of Education recommended on Line 7, Page 5. There being NO OBJECTION, the motion was adopted. Co-Chair Therriault MOVED to ADOPT Amendment #5. [Copy on File]. RICK CROSS, DEPUTY COMMISSIONER, DEPARTMENT OF EDUCATION, explained that Amendment #5 would modify the quality school language. The substantive change is that the accreditation process would be removed. Mr. Cross advised that during the past week, Commissioner Holloway had been holding meetings with school communities in the State in order to discuss the proposed language. Mr. Cross pointed out that Amendment #5 was the result of those conversations, and has the support of the Department of Education. Co-Chair Therriault asked if school districts would be required to continue reporting. Mr. Cross replied that there would continue to be a testing and reporting of student results in order to insure that students are meeting high standards. Such action provides a tool to identify schools in crisis and decline, requiring them to submit improvement plans. If during the next two-year cycle improvement was not occurring, those school districts would then have to submit a report to the State Board of Education. There being NO OBJECTION, Amendment #5 was adopted. Co-Chair Therriault stated that Amendment #6 would be HELD. [Copy on File]. He asked Mr. Cross to address the problematic impact of "bumping up" the determination need for two schools or two programs. Mr. Cross replied that Amendment #6 would move the definition of "school" from regulation to statute, establishing definition for application of a foundation formula. The definition provided during a previous Committee meeting included a "breaking" point as to where to begin running an elementary or secondary program in communities that were greater than 50 and up to 75 students. Amendment #6 would change that number from 50 to 100. Additionally, for those communities over 750, alternative schools would be counted separately when having over 200 students. At this time, Alaska does not have alternative schools with over 200 students. In response to Representative G. Davis, Mr. Cross explained that prior to SB 36, there has not been a definition of schools for the specific purpose of computing state aid. This is the first bill which uses schools as a point of focus. The definition was created for the purpose of applying state aid and was made in consultation with McDowell Group. Co-Chair Therriault stated that Amendment #6 would be HELD for further consideration. Representative Foster questioned the impact of the proposed amendment. Co-Chair Therriault replied that the impact would be to those school districts with over 50 children, which are counted as two schools. Amendment #6 would raise the break point of one school up to 100 students. Co-Chair Therriault remarked that the Committee would need more time to consider the number of schools which that change would impact. Co-Chair Therriault MOVED to ADOPT Amendment #7. [Copy on File]. He explained that Amendment #7 would provide a two- year phase-in for districts benefiting under the new proposed formula. There being NO OBJECTION, it was adopted. Representative J. Davies MOVED to ADOPT Amendment #8. [Copy on File]. Co-Chair Therriault OBJECTED. Representative J. Davies noted that the amendment would delete the comparison of administrative to instructional costs. He explained that the "average" recommended in the proposed legislation was heavily weighted toward larger districts. Amendment #8 provides language to address this concern. Co-Chair Therriault questioned the Department's procedures when viewing district records, moving them into compliance, filing information. Mr. Jeans responded that school districts are statutorily required to have an annual financial audit. The problem, which the McDowell Group discovered, is that the Chart of Account used is only a guide, and that there are 53 different school districts interpreting that information differently. He guaranteed that there will be inconsistencies without the Department staff comparing expenditures. Co-Chair Therriault asked if the Department had proposed regulations that could define the chart, which would hopefully lead to a more consistent reporting. Mr. Jeans replied that the Department did initiate that process and that the State Board of Education had adopted a revised Chart of Accounts. The definitions are now tighter. Representative J. Davies pointed out that currently, there has not been enough time to gauge for the efficiency follow-up. (Tape Change HFC 98 - 166, Side 2). Mr. Cross understood that the language referenced by Representative Mulder would indicate that an analysis would occur in order to guarantee that a school district complies. If they do not comply, they would need to petition the Department to receive justification. If a waiver were granted, it would be forwarded to the Legislative Budget and Audit Committee (LBA) for review. He believed that a standard was being established in which most districts in the State would not be able to comply, consequently, the Department believes that the exemptions will become standard. Mr. Cross pointed out that the operative portion of Amendment #8 would provide oversight to insure that the administrative costs are minimized. The idea is consistent with what the McDowell Study recommended. All the audits done in the State are independent and must apply with generally acceptable accounting principles. Therefore, there are wide differences in how each district reports information. Until there is an agreement within the districts to gain consistency in reporting, it will be difficult to establish targets and goals. The Department needs to provide the oversight and to work in partnership with the school districts. Co-Chair Therriault inquired the percentage of districts which operate efficiently. Mr. Cross replied that would be an impossible question to answer because of the vast differences which exist in our school districts. A roll call vote was taken on Amendment #8. IN FAVOR: Grussendorf, Moses, J. Davies OPPOSED: Foster, Kelly, Kohring, Martin, Mulder, G. Davis, Therriault Representative Hanley was not present for the vote. The MOTION FAILED (3-7). Representative Grussendorf MOVED to ADOPT Amendment #9. [Copy on File]. He explained that the amendment would address the true and assessed value of a borough. The North Slope Borough is afraid that they will not be capable to continue to make a high payment as they have in the past. Passage of the amendment would allow them to contribute the same amount as in prior years. Mr. Cross commented that when the current foundation formula was developed ten years ago, everyone believed that the assessed valuation of the North Slope Borough (NSB) was the "high" number. The formula was written with that amount and the excess contribution was based on $12 million dollars. When SB 36 was drafted, the high number was used and the North Slope Borough based their calculations on that understanding. Current law was written to allow a high local contribution for the NSB. Representative Grussendorf emphasized that Amendment #9 is essential to continue the practice currently used in that community. Co-Chair Therriault questioned the impact. Mr. Cross explained that NSB has both a required local effort and an excess local effort to arrive at their cap which is 23% of the basic need. NSB does not have a cap because it falls outside the disparity test, resting in the high five districts of the State. The crafters of the current foundation formula wanted some limit on the amount that NSB should contribute. Two (2) mills was used, based on the belief that to use the higher accessed number would determine the value. He continued, 2 mills was under the target and, thus, was allowed. Representative J. Davies pointed out that the community does not want to be limited by the lower amount and that the language of the amendment stipulates that they could use last year's amount. Co-Chair Therriault noted that if the pending litigation determines that the assessed valuation is the lower amount, they would be able to use prior years-actual local contribution or the 2 mills. Mr. Jeans explained that currently, NSB is contributing approximately $27 million dollars toward their school- operating budget. The proposed language would allow them to continue to contribute at the $27 million dollar level. Co-Chair Therriault noted that Amendment #9 would be HELD in Committee. SB 36 was HELD in Committee for further consideration.