HOUSE BILL NO. 13 An Act relating to reimbursement of municipal bonds for school construction; and providing for an effective date. Co-Chair Chenault MOVED to ADOPT work draft #24-LS0062\X, Mischel, 4/26/05, as the version of the bill before the Committee. There being NO OBJECTION, it was adopted. REPRESENTATIVE CARL GATTO, SPONSOR, noted that HB 13 was introduced to "take care of a fast growing community". Every community in the State has school maintenance and replacement needs; Mat-Su has needs for school construction because of the growing student numbers. HB 13 requests a 70/30 split for those construction costs. The district would float bonds in hopes of getting approval. Following a survey, the approval rating for the bonding was approximately 80%. Since that time, the bill has gotten "heavier". He stressed that the committee substitute just adopted incorporates a substantial revision to the original proposed HB 13. The intent of the original bill was to build space for children. The bill now includes a major revision of the funding formula and threatens the substance of the bill. Representative Gatto pointed out that a study was added under the committee substitute. He stressed that SB 36 changed the method of funding from an instructional unit to use of a formula. Mostly rural school districts suffered under SB 36. That bill carried a "funding floor" providing rural schools grant money and an adjustment was made for those districts. Representative Gatto challenged the model used for the air- study. The problem is that study deals with facts, numbers and observations and cannot be proven right. The study was flawed. Because of those flaws, the Institute of Social and Economic Research (ISER) commissioned a second one. The current version of HB 13 resulted from that study and propose money be redistributed. 1:53:33 PM Representative Gatto acknowledged that some districts are underfunded. HB 13 addresses redistribution of district funds. He highlighted the districts that would not do well under HB 13: · Anchorage school district would loose $24 million dollars; · Mat-Su schools district would loose $3 million dollars, and · Fairbanks school district would loose $6 million dollars. 1:55:21 PM Representative Gatto noted that he spends a lot of time in the classroom in his district and that he has a strong association with his school district. He found it astounding that there are classrooms with 35 students. He believed that the ISER study would make situations worse. The Mat-Su district is already very efficient, using 90% of income for salaries, while other districts give only 65%. Representative Gatto emphasized his concern that the ISER study and the proposed legislation not be married as it is unreasonable and unfair to penalized districts that are crowded, while sending money to districts that are not. He believed that crowding is the single most important issue in the classroom. 1:58:19 PM Co-Chair Meyer understood that the original bill did have a 70/30 change and that the proposed committee substitute did include the ISER study. He requested that Co-Chair Chenault address the changes. Co-Chair Chenault apologized for "hi jacking" Representative Gatto's bill. He noted for the record that he understands the need for the Mat-Su school district and their expanding population. He referenced the inequities in his own district and agreed with the inequities resulting from SB 36. He pointed out that his own district suffers huge concerns with the cut backs that have dramatically affected the district. He added that his district has a nursing option only one time per week; there are no kindergarten aids, and that most of the schools have between 400-500 students. Co-Chair Chenault questioned how the inequity problems could be fixed statewide. 2:02:17 PM Co-Chair Chenault agreed that the proposed scenario is not the right answer and stressed that every study has looked at cost differentials; they are all are flawed. Everything has been postponed and the school districts can no longer wait. 2:03:28 PM Co-Chair Chenault agreed that taking money away from a school district, forces that district to become more efficient. Because his district has become so efficient, they have been penalized. SB 36 is flawed. 2:07:14 PM Co-Chair Chenault pointed out that the Kenai School District is composed of both urban and rural schools. The time has come to fix these problems and HB 13 is the beginning of that fix. Legislators must come together to determine an agreement regarding the issues. 2:08:35 PM Co-Chair Chenault hoped that HB 13 could make it through the House and Senate and become a vehicle for opening up discussion on these issues. 2:09:02 PM Co-Chair Meyer understood that the change made by Co-Chair Chenault was to Section 3. Co-Chair Chenault said yes. 2:09:17 PM Co-Chair Chenault acknowledged that the ISER report was added to the original bill and he thought it would be the fairest way to make a difference. It would provide a four- year phase in beginning this year. It would: · Help the State's budget process, · Allows districts to determine their costs; and · Allow time for legislative committees to determine if the numbers were correct. Co-Chair Chenault noted support for the original bill, realizing there are other districts with similar concerns. He emphasized that these statewide problems must be addressed. 2:11:03 PM EDDY JEANS, DIRECTOR, EDUCATION SUPPORT SERVICES, DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, noted that the total cost of ISER proposed differential would be $82 million dollars. 2:12:03 PM Co-Chair Meyer understood that Anchorage would remain the same for all four years. Mr. Jeans stated that Section 3 would phase in the cost differential recommended by ISER, over a four-year period. Doing the phase-in, there would be an annual cost of approximately $20 million dollars. Anchorage is at zero because it acts as the baseline. 2:12:57 PM Representative Hawker requested backup for the fiscal impact to the individual schools districts. Mr. Jeans said it was not available. Representative Hawker asked the funding level base for the $82 million dollars. Mr. Jeans replied it was based on student allocation, A.S. 4576. Representative Hawker asked the consequences of increasing that amount. Mr. Jeans replied it would be approximately $90 million dollars. 2:14:07 PM Representative Hawker inquired if there would be a hold harmless for those communities close to the baseline factor or would there be redistribution. Mr. Jeans stated that if the cost differentials were implemented, without the fiscal note being adopted, there would be redistribution based on the A.S. 4576, prorating the student allocation down to equal the differentials. Representative Hawker questioned the cost to the Fairbanks School district. Mr. Jeans said it would depend if there were a full implementation or graduated scale. Representative Hawker asked about the full implementation. Mr. Jeans did not have that number available. The redistribution, if held to A.S. 4576 appropriation level, would have an adverse effect to the Anchorage, Fairbanks, Mat-Su, Ketchikan and Juneau School Districts. Representative Hawker stated for the record that he associated himself with the frustrations recorded by Co- Chair Chenault, however, proposing an approach as done by the Chair, troubled him. Solving problems by taking money from one school district and giving it to another is not a good model. 2:16:13 PM Co-Chair Chenault asked if the State continues to bump-up the student base allocation, what would happen. Mr. Jeans explained that the proposal would adjust the existing cost differential by one quarter of the difference. That would have an annual cost of approximately $20 million dollars. The $20 million would be in addition to the $70 million dollars currently being considered under HB 1 at the discussed level. The total increase to schools in the current year if both bills passed, would be approximately $90 million dollars. All school districts would have increased funding under that scenario. 2:18:02 PM Co-Chair Chenault asked if school funding was increased next year by $70 million dollars would all school districts benefit. Mr. Jeans explained that the manner in which the bill is currently structured, the adjustment would be built into the base next year. If the Legislature elected to increase the base student allocation, that would provide additional resources to all school districts across the State. Co-Chair Meyer pointed out that SB 155 includes the 70/30 program. Mr. Jeans advised that SB 155 is a grant program. Under the Department's school construction grant program, there is a participating share. For the larger communities, their local match is 30%. Similar rules apply, however, the difference is, under SB 155, the State is providing for the grant to 70%; under the debt reimbursement program, the voters would need to approve the project for the bonds issued. 2:21:32 PM In response to a query by Representative Kelly, Mr. Jeans understood that Kenai would experience a small drop. 2:22:42 PM Representative Joule asked why the original bill language had been deleted allowing for the Rural Education Attendance Area (REAA) bonding. Co-Chair Chenault did not know. Representative Joule voiced his concern with SB 155 and major maintenance with comparison to HB 13, which allows districts some construction costs. The contingency language allows the REAA's to address new school construction. He said he would address those concerns with an amendment. 2:25:03 PM Representative Hawker raised concerns regarding the basis of the numbers. He noted that the Legislative Budget Committee (LBA) Committee had contracted for the air report. He pointed out that he was disappointed with the flaws in the ISER evaluation process. To determine the cost differentials, ISER made a judgmental determination. The reason that a teacher would accept a job in certain locations is #5 on the teacher's lists. Representative Gatto remembered the study, pointing out that salaries were not #1. Representative Hawker pointed out that was one of the driving factors in the ISER study. He indicated he was troubled with the proposed numbers. He believed that the closer the decision was to the Legislature, the better that decision could be, looking for equivalency to level the playing field. 2:30:35 PM Representative Croft commented on the process that occurred with passage of SB 36 seven years ago. He noted that he was the only legislator from Anchorage or Fairbanks that voted against SB 36. That bill, the education-funding formula, was based on false information. The legislation concluded that it cost no more to put a teacher in rural Alaska than it does in Anchorage. That was and still is false. There were other falsehoods in the premise of SB 36. The ISER study asked the correct questions by asking how to get a teacher out to the village area. The ISER puts the State closer to the truth regarding those costs. To pretend that it does not does cost more to have a teacher in rural Alaska is not true and does an injustice to many of the students of the State. 2:33:53 PM Representative Hawker added that the ISER study based its conclusions on questions. It was acknowledged in the ISER report that they did not address whether additional funding would result in the districts having additional personnel. 2:34:57 PM Representative Kelly was concerned with what was happening in Co-Chair Chenault's district but wanted to know that the legislation would "make sense" regarding cost differentials. 2:37:36 PM Representative Joule stated that he would have an amendment regarding the contingent effect of the needed conforming sections for appropriations in the REAA's. HB 13 was HELD in Committee for further consideration. AT EASE: 2:39:22 PM RECONVENE: 2:43:45 PM