HOUSE BILL NO. 105 An Act relating to the base student allocation used in the formula for state funding of public education; and providing for an effective date. REPRESENTATIVE GARY STEVENS noted that Alaska's Public Education Funding Formula is based on a specific dollar amount per student. The base student allocation was established in 1998 as $3,940 per student and has not been increased since that time. HB 105 increases the allocation by $101 dollars. Representative Stevens advised that during the past 14 years, inflation has had an impact on public school funding and that the purchasing power of the general fund education dollars have slowly eroded over time. Although, the State's contribution to the 53 school districts has increased 54% since FY88, the effect of annual inflation, as well as an increase in student enrollment, has negated the growth and the purchasing power of the student dollar has been diminished. Representative Stevens pointed out that the public school foundation program has lost 13.9% on a student dollar basis since FY88 due to the cumulative effect of annual inflation. HB 105 proposes to recoup some of that loss. Representative Stevens commented that supporters of a world class educational system for Alaska must agree that, while at the same time inflation is eroding the purchasing power for the student dollar, Alaskans are asking public schools to take on more and more responsibility in three areas. · First, many parents today regularly drop off their children at school early in the morning and pick them up after work. School personnel today provide not only classroom instruction for these students but also offer the emotional, social, and moral support needed before and after regular school hours at a level unheard of a generation ago. The increased time that a child spends at school increases the responsibility of the local teachers and administrators. · Secondly, as performance standards and the corresponding assessments become a reality and are accepted as commonplace, each neighborhood school and classroom will be held more accountable for student learning. Children who need extra innovative instruction to master these standards will be identified and teachers will offer appropriate remedial learning opportunities. The added tutoring sessions necessary for some students may be offered within the regular school day or during a Saturday or summer school program. The added accountability is a step in the right direction, but it does have substantial impact on the financial resources of our local school districts. · Lastly, classroom teachers are on the frontline with the children and must be held accountable for their learning and performance. Alaska's young people deserve to be taught by the very best teachers possible. Alaska's school districts are faced with the responsibility of recruiting and retaining a highly qualified work force at a time when teachers are in short supply, which is not an easy task. The State has an obligation to provide adequate funding to all public school districts so that all school districts can hire and retain quality teachers Representative Stevens summarized that public education is faced with the unenviable position-assuming greater responsibility with a reduction in the purchasing power of the student dollar. Alaska cannot continue to ask the 53 school districts to meet all these additional responsibilities with a dwindling budget, therefore, additional funding is a necessity. Representative Stevens stressed that the increase of $101 dollars per student provided the legislation would assist local school districts to meet, and hopefully exceed, the public's expectations and demands. Representative Davies asked if the 30% inflation costs would be covered. Representative Stevens stated that it would not and that it would be substantially less. Vice-Chair Bunde asked if the 30% inflation increase had been in the last ten years. Representative Stevens replied that the Anchorage School district had calculated it. He added that there is no way to determine if that was the correct amount, but emphasized that it was the amount that had been spent. Vice-Chair Bunde asked how many schools were receiving classroom instruction waivers so that they could put that money into administrative costs. Representative Stevens recommended that the Department answer that question. Representative Whitaker asked if the 30% inflation factor had included the increase in contributions from local property taxes. Representative Stevens did not know. He reiterated that the figures had been provided from the Anchorage School district. Representative Hudson inquired when the last time the foundation formula increased. Representative Stevens replied that since 1988, it has increased by 54%. Representative Davies asked the funding need in various school districts. Representative Stevens replied that there exists a tremendous problem in the school districts. He claimed that it would be a disservice to the entire profession. Putting money into the foundation formula also raises the cap. The cap is the amount that the local districts contribute of their own money for schools. He noted that districts are finding ways to circumvent the cap. Vice-Chair Bunde noted that not all schools make local contributions. Representative Stevens acknowledged that was true and that some districts receive money for funding outside State contributions. Representative Harris pointed out that the original number had been reduced and referenced other legislation regarding the costs of running schools. If that legislation becomes a reality, next year education would be funded at a higher level. Representative Harris noted that he supported that legislation. Representative Stevens stressed that it is essential that a study be undertaken as additional costs are pending. Representative Davies believed that it would be easier to get an increase if the base had been built up. Representative Stevens responded that whatever help could be offered this year would be appreciated. EDDY JEANS, MANAGER, SCHOOL FINANCE AND FACILITIES SECTION, DEPARTMENT OF EDUCATION & EARLY DEVELOPMENT, clarified that inflation has increased 30% over the past ten years. The Legislature has increased the base allocation by only 5%. The formula self adjusts for the property tax increases. The minimum level for the base student allocation has been determined and the minimum level of revenue that districts need to support education. That money is divided between pots of federal, local and state dollars. As property values increase, if the base student enrollment is held constant, then the State general fund requirement would decrease. The base allocation to school districts over a ten-year period has only increased by 10%. Representative Whitaker asked if there has been a one to one reduction in the ratio. Mr. Jeans replied that was close. Vice-Chair Bunde asked how many school districts were currently requesting money for waivers. Mr. Jeans replied that was the provision which required school districts to spend 70% of their fund on instruction. The districts may apply for a waiver from the State Board of Education if there are circumstances beyond their control. In FY2001, there were 24 school districts applying for waivers. In many of those school districts, there is a dispersed and small population so many sites are being operated with high operational costs. He noted that all 24 waivers were granted. Vice-Chair Bunde questioned how many single site schools with high overhead there were and how many schools districts that makes no local contribution. Mr. Jeans replied that there are 19 Regional Education Attendance Areas (REAAs) that do not make a local tax appropriation to education. The Administration's position has always been that impact aid is in lieu of property taxes. Those lands have been moved by federal action from the tax rules. Even if those lands moved into boroughs, most of them are still non- taxable and would be used to offset the general fund requirements. In response to Vice-Chair Bunde comment, Mr. Jeans advised that those communities do not make a local tax contribution for their schools through an organized government. They make it through the federal government. Representative Davies asked what the high operational costs are. Mr. Jeans explained that those costs relate to economies of scale. Some school districts, serve many communities. There is one community that serves over 100 students. They do not have the population to spread the operational costs over. He noted that fuel costs have increased over the past year. Representative Whitaker referenced federal impact dollars. Mr. Jeans explained that they are called federal impact aid dollars and they are received in lieu of local property taxes. Those properties are non-taxable due to some type of federal intervention. The federal government has come back from their own program and indicated that they recognize their obligation to support education because those properties were moved off the tax roles. If those regions were incorporated into boroughs, those properties still would not be taxable and they would still generate the federal dollars. Mr. Jeans pointed out that the last student increase amount occurred in 1993 under the instructional unit method of a 1.7% increase. Over the last ten years, that 1.7% increase plus the 3.3% amount under SB 36 provides the 5% increase. Representative Davies asked if any urban districts had received some of the federal impact aid. Mr. Jeans stated that there is only six schools districts in the State that do not receive the impact aid. Most of the urban districts do. In the military installations in Anchorage and Fairbanks, the land is non-taxable and generates revenue. Mr. Jeans addressed the cost differential adjustments. He pointed out cost differences by regions, providing a comparable program. It is not about adequate level of funding. Under the cost differential, there will be shifting in money once the report comes out. There will not be a large increase required as a result of that study. The number will adjust the way that the money is distributed in the formula. Representative Lancaster asked if it was expected that there would be an increase as a result of that. Mr. Jeans replied that the increase would be modest. Through the foundation program, a $665 million dollar program in FY02 budget, and the portion that makes up the cost differentials is less th than $70 million dollars. That would be 1/10 of the local program. SENATOR ROBIN TAYLOR advocated that the foundation formula should be increased. He recommended that there needs to be modifications and fine-tuning to that formula. He commented that this would be the best the Legislature will see this year. He noted that the bill that he submitted would raise the formula by $210 dollars per student. Senator Taylor stated that the bill provides for less than half of what is necessary to adequately fund education. He encouraged members to move forward. In response to Representative J. Davies, Senator Taylor advised that there are no nurses, no art and music programs, and no physical education programs in the elementary schools in his district. He stressed that there is a disparity in the formula. The formula must be adjusted upward and he proposed that the bill would be a good compromise. SENATOR ALAN AUSTERMAN voiced his support for HB 105. He stressed that the State must put more money into education. Funding has not been increased for years and it is long overdue. He noted that he had introduced legislation that provides for a school head tax to help pay for education. He offered to discuss that option. CARL ROSE, EXECUTIVE DIRECTOR, ASSOCIATION OF ALASKA SCHOOL BOARDS, JUNEAU, voiced support for the legislation. Mr. Rose noted that he had served on the Governor's Education Task Force. That Task Force identified $34 million dollars that is needed to "do the job". He pointed out that there is one school district in which 58 positions have not been filled. If those positions are not filled, they will be filled with substitutes who are not qualified. He asked what the chances were that those kids would be able to reach the standards with substitute and unqualified teachers. Mr. Rose suggested that over a period of time, the State has been unable to attract and maintain quality teachers. A future cost model would not reflect the ability to hire and maintain good teachers. That is where the grade is made or not. Mr. Rose voiced support for increasing the number back to the original $28 million dollars that was contained in HB 105. He stressed that there needs to be a broader view, with a sound fiscal long-range plan. The State needs to broaden the perspective for the future for Alaska. Mr. Rose projected that with the current funding, education will "hit the wall" in four to five years. He emphasized that $34 million dollars was a modest request. Vice-Chair Bunde pointed out there is a $600 million dollar fiscal gap. He stated that whatever is done now, those children will have to pay taxes to fill that gap. Mr. Rose responded that the future holds potential for increased revenue. The ability for the State to pay now and dollars to be leveraged out of the earnings reserve, provide that a number of options could generate a modest rate to offset declining revenues and project a better picture for the future. PATRICK HICKEY, (TESTIFIED VIA TELECONFERENCE), KENAI PENNINSULA BOROUGH SCHOOL DISTRICT, KENAI, voiced support for the legislation. Representative Moses noted that he resented the fact of using the "fiscal gap" for not supporting the funding of education. The State should be funding education properly. Representative Davies MOVED to ADOPT Amendment #1. [Copy on File]. Co-Chair Williams OBJECTED. Representative Davies explained that the amendment would delete "$4,041" and insert "$4,091" to Page 1, Line 6. The change would bring the State closer to the inflated number. TAPE HFC 01 - 93, Side B  Co-Chair Williams agreed with Representative Moses that the State should be increasing the amount, he however, pointed out the difficulty increasing that amount would politically cause at this time on the Senate side. He claimed that the "push" to increase the budget came from the public. Representative Croft questioned with whom the House Finance Committee was compromising with. He stated that if the House Finance Committee agrees that $150 dollars would be the proper amount, then that is the amount that should be included in the bill and forwarded to the other body. Compromise is an important part of the legislative process. He pointed out that two Senators have already indicated that the number is too low. He emphasized that the appropriate number should be placed into the legislation. Representative Croft added that the formula would generate a reduction to the State's contribution. Representative Whitaker interjected that the Legislature has begun the negotiation process. He acknowledged that there would be a compromise within any system. He stated that $20 million dollars would be a reasonable number given the circumstances. Representative Lancaster echoed sentiments proposed by Representative Whitaker. Vice-Chair Bunde pointed out that regardless the agreed number, it would be impossible to satisfy all parties. Recess: 3:20 p.m. Reconvene: 3:40 p.m. A roll call vote was taken on the motion to adopt Amendment #1. IN FAVOR: Davies, Moses, Croft OPPOSED: Foster, Harris, Hudson, Lancaster, Whitaker, Bunde, Williams, Mulder The MOTION FAILED (3-8). Co-Chair Mulder MOVED to ADOPT Amendment #2, the Intent Language. [Copy on File]. Representative Davies noted concern that there would be a separate accounting attached. Co-Chair Mulder explained that his intent was to include "outcome performance based" objectives. Vice-Chair Bunde noted that there was other legislation that would call for a similar report. Co-Chair Mulder suggested that both pieces of legislation could use the one report. Representative Davies asked if it was the intent that the language be placed in statute. Co-Chair Mulder replied that it was his preference that the language be included in an intent section in the bill. He added that either way would be okay if it was attached. There being NO OBJECTION, Amendment #2 was adopted. Co-Chair Mulder MOVED to report out of Committee CS HB 105 (EDU) with individual recommendations, the Letter of Intent and with the accompanying fiscal note. Representative Davies OBJECTED for a comment. He stated that the Minority Caucus believes that the amount proposed was too low. Representative J. Davies WITHDREW his OBJECTION. There being NO further OBJECTION, it was so ordered. CS HB 105 (EDU) was reported out of Committee with a "do pass" recommendation and with a House Finance Letter of Intent and a fiscal note #1 by Department of Education & Early Development dated 4/23/01.