HOUSE BILL 493 "An Act relating to reimbursement of municipal bonds for school construction." 2:08:07 PM PETER ECKLUND, STAFF TO REPRESENTATIVE KEVIN MEYER testified regarding the bill. He explained that the bill proposes to allow municipalities to bond for school construction and renovation projections beginning November 1, 2006 and ending November 1, 2008. He noted that under current legislation, any municipality could ask their electorate to approve funding for school capital projects. The principal and interest payments would then be eligible for partial payment by the State. Municipalities would be reimbursed for 60 percent of the cost of all projects that met all the space allocation guidelines set forth by the Department of Education and Early Development. Mr. Ecklund noted that a 40 percent reimbursement rate would apply to projects that exceeded the space allocation guidelines. He stated that currently there were over $146 million in projects submitted to the Department that could qualify for this reimbursement. Co-Chair Meyer asked for an explanation of how the 60/40 percent was arrived upon, rather than the previous 70/60 formula. Mr. Ecklund explained that in 2002, the passage of HB 2003 opened a two-year period of school debt reimbursement. He stated that $699 million of debt was authorized to be reimbursed by the Department -- 55 percent at the 70 percent rate, and 45 percent at the 60 percent rate. It followed that nearly half of the schools took advantage of the 60 percent rate. The Department concluded therefore that the 60 percent rate must have proven fair and attractive to municipalities. Co-Chair Meyer referred to the current program, in which the State paid for 70 percent of costs of a Department of Education approved project, and asked if the program was still in effect until October 1, 2006. Mr. Ecklund stated that there was a non-capped program open between December of 2002 and December of 2004. He noted that currently there were $192 million of projects authorized to be bonded until October of this year, with different caps for schools with different enrollment rates. He explained that the current program finances 70 percent of the cost of approved projects, and 60 percent of unapproved projects, expiring in October of 2006. 2:11:52 PM Co-Chair Meyer clarified that under the proposed program, if a project was on the approved list, it would qualify at the 60 percent rate, with no caps. He asked if the proposed lower rates of reimbursement were related to the current level of indebtedness. Mr. Ecklund stated that the debt service payments for previously authorized debts was $94 million, which did not include the nearly $300 million in projects that have been authorized but not requested. He also noted that for every $100 million in debt authorized, the State's debt service payments increased $6 million per year for twenty years. He concluded that if all authorized projects requested payments, it could increase the State's debt payments by $18 million annually. Responding to a follow-up by Co-Chair Meyer, Mr. Ecklund confirmed that currently the debt level was uncertain. 2:13:40 PM Co-Chair Meyer speculated that since this bill proposed the lower rate, it would result in a lower overall debt. Representative Stoltze observed that a project would need to meet requirements after it was submitted. He expressed certain frustrations with the capital project process of the Department of Education and Early Development in terms of waiting time and expense. 2:14:38 PM Representative Joule asked if a tax relief or community dividend bill might be a companion to this bill, and observed that this seemed to pass a debt burden to communities, which often resulted in higher property taxes. He acknowledged that while his comment was somewhat facetious, it also pointed out a real issue. He asked if an earlier debt reimbursement bill connected to a General Obligation (GO) bond. Mr. Ecklund confirmed that a GO Bond package on the ballot in 2002 addressed previous debt reimbursement. 2:16:31 PM Representative Joule observed that there was current construction in rural Alaskan schools that pertained to this issue. Co-Chair Meyer pointed out the $25 million in the budget to complete maintenance items from the previous year, and his awareness of other rural construction or repair projects that would need to be addressed by the capital budget. 2:17:21 PM Representative Joule asked for clarification about the section of the bill that was funded at 40 percent. Mr. Ecklund responded that during the last two-year period, there were 70 and 60 percent debt reimbursement provisions. He reiterated that during that time, 45 percent were paid at the 60 percent level for unapproved projects. 2:18:19 PM Representative Stoltze noted an earlier proposal with a 50/50 proposition in the interior, but noted that these could not be determined without certain agreements. He expressed concern over whether this represented a "bidding war". 2:19:06 PM Co-Chair Meyer noted that this was the highest amount the State felt they could reimburse based upon current debt loads. He suggested that in the past years, with a lower debt load, the State was able to reimburse up to 70 percent, but that currently, a 60 percent ratio seemed more reasonable. Representative Stoltze commented that the Matsu Borough and School Board had experienced frustration in trying to receive the State funding needed to adequately house students. He expressed the need for discussion about the proper ratio of reimbursement funding. 2:20:32 PM EDDY JEANS, DIRECTOR, EDUCATION SUPPORT SERVICES, DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT testified regarding the bill. He complimented Mr. Ecklund for his explanation of the bill's history. He then pointed out the indeterminate fiscal note prepared by his Department, since it was currently unclear which schools or projects would apply for this reimbursement. In response to an earlier question about how many projects were currently outstanding, he stated that currently $100 million had been authorized by voters and the Department of Education. He noted that municipalities had not yet issued these bonds. He also stated that an additional $200 million had been authorized last year, partially approved by the Department and by voters. He confirmed Mr. Ecklund's earlier observation that for every $100 million in the 70 or 60 percent reimbursement ratio, the estimated annual debt payment to the State was $6 million for approximately 20 years. He emphasized that currently the State's debt burden was $94 million, with an additional $18 million estimated for the next two years, putting the State's debt reimbursement program at approximately $112 million. 2:21:51 PM Mr. Jeans then pointed out that at the ratios in the proposed legislation, the State's debt program would drop to approximately $5 to $5.5 million per $100 million authorized. Co-Chair Meyer referred to a handout pertaining to State Capital Funding, provided by the Department of Education, and asked if the Department recommended the 60 percent ratio. Mr. Jeans responded that the recommendation made in the report was for a greater variance between reimbursement levels for those projects that met, as opposed to exceeded, the Department approved space guidelines. He pointed out that nearly half of the projects authorized under HB 2003 exceeded space guidelines, leading the Department to conclude that a ten percent differential did not seem to matter to districts. They therefore recommended a larger span between percentages. Co-Chair Meyer concluded that the Department was concerned more with the span than the actual percentages. Mr. Jeans stated that the Department would leave it to the legislators to decide the reimbursement levels, but pointed out that the impression that a ten percent differential would deter districts from department from space guidelines had proven untrue. 2:24:10 PM Representative Kelly asked whether the amount of projects exceeding space guidelines created a financial burden. Mr. Jeans responded that when HB 2003 was passed in 2003, the Department knew there were projects that exceeded space guidelines, but did not anticipate that nearly half the debt reimbursement would fall under that category. He reiterated that the ten percent difference did not seem to deter districts from building outside space guidelines. 2:25:06 PM Representative Stoltze referred to past contention over the development of criteria, and asked if enough weight had been placed on areas with documented rates of growth. He asked if in effect there existed a penalty for pre-planning. Mr. Jeans acknowledged that in the current system there was not a provision to encourage future planning in municipalities. He noted that they currently focused on reacting to problems of overcrowding. He noted however that they did allow for six or seven year enrollment projections when applying for new space. He conceded that in areas like Matsu, the system was not currently able to keep up with the level of growth. 2:26:29 PM Representative Stoltze suggested that it might be helpful to provide reimbursement for land acquisitions in advance. He noted the increasing difficulty to find adequate parcels, as well as contentious legislative efforts in the past attempting to lower costs. 2:27:18 PM Representative Joule asked if grant funding to schools unable to bond had ever exceeded space guidelines. Mr. Jeans responded that there had not. Representative Joule followed up by observing that negotiating space differences occurred prior to the Department issuing its priority list for the year. 2:28:20 PM Mr. Jeans noted that grant projects must fall within space guidelines, and only under HB 2003 and SB 73 last year did the State allow debt reimbursement for projects that exceeded space guidelines. 2:28:43 PM Responding to a question by Representative Kelly, Mr. Jeans confirmed his Department's belief that a 20 percent differential would affect the number of projects that exceeded space guidelines. 2:29:03 PM LARRY WIGET, DIRECTOR OF GOVERNMENT RELATIONS, ANCHORAGE SCHOOL DISTRICT testified online. He commented on the success of the school debt reimbursement program, and pointed out that higher reimbursement numbers made it easier to pass bonds with voters. He confirmed that the School District supported the bill, but stated that they would like to extend the time for the new program, from November 1, 2008, to November 30, 2008 to allow for the election to occur that year for approving bonds without holding a special election. Co-Chair Meyer proposed that they create CONCEPTUAL AMENDMENT changing the end date of the legislation. 2:31:17 PM Representative Hawker asked whether, if they approved the shift in percentage reimbursements, it would reflect poorly on the legislative support of schools. 2:31:46 PM Mr. Wiget expressed appreciation of the program being currently put forth by the legislation. He reiterated that the greater the level of participation by the State the easier it was for districts to pass bonds, but expressed appreciation for the reimbursement program. 2:32:31 PM Representative Stoltze noted that the April election in Anchorage, as opposed to an October election in other parts of the State, seemed to cause problems of non-conformity, in this case necessitating an amendment. Co-Chair Meyer expressed the desire to HOLD the bill in order to address further amendments. 2:33:27 PM Representative Holm referred to very large school projects, and asked if a more standard school system in Alaska was more cost effective for the state, rather than individual designs. 2:34:15 PM Mr. Jeans explained that the Bond Reimbursement Review Committee had examined the issue of prototype schools. They found that in larger communities like Anchorage, protypes worked well at the elementary school level, since there were so many schools. However, the State has not adopted a standard prototype for high schools. 2:35:24 PM Responding to another question by Representative Holm, Mr. Jeans noted that examination of this issue led to prototypes being used in Anchorage and Fairbanks. He noted that there was not enough construction in the state of large schools to make prototype models economically favorable. Representative Holm observed that all schools have a similar function, and suggested that the cost for construction should not change by changing the appearance of a unique school. He expressed that a $54 million high school made him uncomfortable. 2:36:43 PM Mr. Jeans reiterated that the Bond Reimbursement Review Committee had examined prototype schools and found them ineffective at the high school level. He stressed that they used such models effectively for elementary schools in Anchorage and Fairbanks. 2:37:48 PM MARY FRANCIS, EXECUTIVE DIRECTOR, ALASKA COUNCIL OF SCHOOL ADMINISTRATORS, (ACSA), testified regarding the bill. She noted a resolution in support of extending the bond debt reimbursement program and expressed appreciation to the committee. She also stated that ACSA members would like to see a higher reimbursement rate. Co-Chair Meyer closed public testimony. Co-Chair Meyer MOVED Amendment #1, 24-LS1752\G.1, Mischel, 3/20/06, changing the end date of the legislation from November 1, 2008, to November 30, 2008. There being NO OBJECTIONS the Amendment was ADOPTED. HB 493, as Amended, was HEARD and HELD. 2:40:07 PM Representative Stoltze, following up on the discussion on school design uniformity, asked for a list of schools and populations to be provided by Mr. Jeans. He noted that in his district, school populations ranged from 700 to 2,200.