HOUSE BILL NO. 72 An Act relating to the district cost factors for state funding of public education; providing for an effective date by repealing the delayed effective date of sec. 6, ch. 41, SLA 2006; and providing for an effective date. 3:24:26 PM REPRESENTATIVE MIKE CHENAULT, SPONSOR, stated that HB 72 was written to enact the cost differential factors for State school funding. HB 72 implements 100% of the Institute of Social and Economic Research (ISER) Study. He stated that if the ISER numbers are correct, it would mean $10 million dollars a year for the Kenai District. The lack of those funds has caused a terrible discrepancy. Co-Chair Chenault commented his school district was being unfairly represented by the current available cost differential numbers. He addressed some items that would be lost in his school district's funding which were not met. th His district is the 4 largest in the State & while they do have many elementary schools, they do not have a nurse or drug prevention specialists. Kenai has smaller schools but also has a larger land mass. Since SB 36 was put into effect, the district is in drastic need. He hoped that HB 72 would provide an effort to move forward & offered to answer questions of the Committee. 3:29:47 PM Co-Chair Meyer pointed out that Anchorage is used as the base level to determine the Base Student Allocation (BSA). He inquired if the legislation passed, would Anchorage's funding be reduced. Co-Chair Chenault responded that if the BSA was raised with an increase to the cost differential, then Anchorage would not be affected. If the funds were taken from the current cost base and no new monies were added, then Anchorage would be reduced. Representative Gara addressed a lack of achievement occurring in the Anchorage schools. After basic courses, the elective options are grim. The needs in big school districts are not as bad as the other & that he supported moving forward to address cost differentials. He asked if HB 72 was implemented and the PERS/TRS rate was paid down, would all school district's BSA be at $77 million dollars. Co-Chair Chenault replied that it would depend on how the numbers were moved around. If the Public Employees Retirement System/Teacher's Retirement System (PERS/TRS) issues were addressed, then the larger districts would receive more by moving the funding outside the formula. Currently, with the funding inside the foundation formula, the numbers are dispersed according to the cost differential. He objected to that model, commenting that the numbers should change. He encouraged that the entire concept be addressed including the PERS/TRS issue. 3:33:38 PM Co-Chair Meyer informed those waiting online that there would be no public testimony at this meeting. He indicated that an arranged time and date would be selected to discuss the matter. Representative Thomas commented he represented 12 school districts and thought the bill could provide millions of dollars for the past eight years. Over that period, the total amount was over $90 million dollars. Vice Chair Stoltze looked forward to continued discussion. He realized it was not an option for some small school districts, while the larger ones like Kenai, have more stnd options. He represents the 1 and 2 largest school districts in the State. He questioned the options for districts smaller than Kenai, who opt for smaller schools and the "trade-offs" associated with those choices. 3:39:08 PM Co-Chair Chenault advised that smaller schools were the District's choice with four high schools. The distance between those schools is vast; some are 75-miles apart. They could consolidate but the parents want to see their children at schools closer to home with less traveling time. Smaller distances build community and not having the funding has made the school district more responsible. He guaranteed that there are no excess dollars in that district & congratulated his borough. The community has funded to the cap allowed. He urged raising the BSA, stressing that his district should no longer be penalized. 3:44:32 PM Representative Nelson added her gratitude to Co-Chair Chenault for the bill. She pointed out that ¾ of the ISER study would amount to $72.5 million dollars. The full implementation of the ISER study would be a little over $97 million dollars. She encouraged school districts to put forward their additional energy costs since the study was commissioned. The air study was released in 2003 based on 2002 prices. The ISER study was released in 2005 based on 2004 prices. She thought that the "loaf" had grown even more. When SB 36 was written, the price of crude oil was $12.31 dollars per barrel, and today it is at $57 dollars per barrel. Co-Chair Chenault said he could not speak to the fuel issue & pointed out that the other ¼ of the loaf was placed in the operating budget. He realized that fuel & energy costs have increased throughout the State. Representative Kelly inquired if there was an option to cap some districts. He worried about a double jump. Co-Chair Chenault addressed capping, noting that the bill was introduced at 100% of the ISER Study. The number is not known as they have not been able to settle on what should be considered. He hoped to get 100% but did not know if that was the correct number. The process is intended to help districts address their cost factors and PERS/TRS; it is hoped to settle upon a number to provide school districts with the opportunity to move forward. 3:50:19 PM Representative Kelly stated for the record that some districts are too small for the funding that they receive. He voiced serious concern with future increased funding, yet agreed that the current system is not adequately working. 3:51:57 PM EDDY JEANS, DIRECTOR, SCHOOL FINANCE, EDUCATION SUPPORT SERVICES, DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, offered to answer questions on the fiscal note or queries on how the State got to where it is. Co-Chair Meyer addressed the BSA and how those numbers would affect Anchorage. Mr. Jeans observed that one would have to go back to SB 36, in which the McDowell Group made it clear that those numbers were based on the manner that school districts were spending at that time. The McDowell Group recommended that the issue be revisited in a couple years. The Legislature assumed that burden and commissioned the study and then asked ISER to do a peer review. Based on the peer review, the Legislature took those recommendations & asked ISER to rerun the numbers. There were two areas of great concern, the first being how the air group calculated the energy portion of the index. They used a lot of criteria for adjustment. ISER recommended going back to the financial statements and using what the districts are currently spending as the measure. He noted that the largest component was addressing the teacher compensation component. ISER recommended making an adjustment for longevity, experience and teacher turnover. 3:56:13 PM Mr. Jeans noted that in the peer review, ISER was clear about the adjustments that were needed. The Legislature paid for those adjustments. Everyone thought they went too far the other way, which he agreed with. Mr. Jeans pointed out frustration with the cost differentials. The total package needs to be a complete rewrite. He did not support a 100% cost differential as the correct formula. He looked forward to a dialogue on the issue. 3:57:34 PM Co-Chair Meyer reiterated concerns and worried about a possible cut to Anchorage. Mr. Jeans explained that if the cost differentials were adopted and not funded, there would be redistribution and Anchorage would get less; however, funding the cost differentials, Anchorage would not loose any funding. It will be a correction to the formula, which needs to be made. 3:58:24 PM Representative Joule referenced teacher salaries and questioned the benefit of offering a single bargaining unit. Co-Chair Meyer interjected that was not an appropriate question at this time. Mr. Jeans added that some states have a built in a salary schedule the State is willing to pay and that anything beyond that is picked up at the local level. 3:59:27 PM Representative Gara requested a chart indicating the affect to each school district if the bill were passed. Mr. Jeans offered to provide that. Co-Chair Meyer agreed and suggested several different scenarios shown in the chart with the PERS/TRS outside and then one with it included in the formula, one with the cost differential implemented and then not funded. Representative Kelly questioned the Department's legislative efficiencies. Mr. Jeans noted the Statute requires the Department to look at cost differentials and then make recommendations to the Legislature. The Department has requested funds to do that; the Legislature elected to take on the task to define cost differentials. He said he sat on the Legislative Budget & Audit (LBA) Subcommittee, which defined the areas. Representative Kelly asked if the Department's methodology would reflect less than 100% of the application to the formula. Mr. Jeans said he did not believe the 100% ISER cost differentials were the real numbers nor did he believe that those were the accurate differentials, and thought it was less. 4:02:58 PM Representative Hawker mentioned the amount of public testimony taken during the LBA Committee and concerns voiced by adopting the ISER results. Mr. Jeans agreed that was a fair representation. 4:04:29 PM PEGGY COWAN, SUPERINTENDENT OF SCHOOLS, JUNEAU BOROUGH SCHOOLS, CITY & BOROUGH OF JUNEAU, stated that the proposed legislation is critical to the Juneau School District and Juneau students. The Juneau community funds education to the maximum allowed & looks to the Legislature for measures of adequacy and fairness. Since 1998, everyone has lived with the rates established in SB 36, loosing ground in terms of educational programs provided. The ISER study may not be perfect but the SB 36 rates are flawed. She urged that the Legislature take action. Each community has different needs & educational funding should do the same. 4:06:37 PM Vice Chair Stoltze requested information on what the bargaining units have obligated their legislators to do. He worried how the request would fit into the overall, State budget priorities. HB 72 was HELD in Committee for further consideration.