SENATE BILL NO. 62 "An Act relating to grants for school construction." 4:02:29 PM DAVID SCOTT, STAFF, SENATOR OLSON, stated that SB 62 added five schools for Regional Educational Attendance Area (REAA) grant fund eligibility. The bill defined what a small municipal school district is and allowed the districts to be eligible for REAA funds including Hydaburg, Kake, Klawock, St. Mary's, and Tanana. He added that the locations were all first class cities and were a part of the unorganized borough. He shared that the REAA fund was created in the 26th Legislature [2009-2010] to provide a revenue stream to REAA school districts; it was a funding mechanism that arose from the Kasayulie settlement. He furthered that the fund was capitalized through a formula included on page 1, line 9. Mr. Scott continued that REAA school districts lacked the ability to bond and could not take advantage of the state's bond reimbursement program (the term 70/30 referred to the program). He relayed that some rural communities had elected to incorporate as first class cities, which required the communities to take on education responsibilities and to lose their REAA school status. He stated that the communities were in "limbo" because they could not use the REAA fund and did not have bonding authority. He communicated that the intent of the bill was to get the schools out of limbo status. He pointed to Section 2 of the legislation and stated that the term "small municipal school district" was defined as a school with an Average Daily Membership (ADM) of less than 300 and with a full value per ADM of no more than $500,000. 4:06:04 PM Representative Edgmon expounded on Mr. Scott's testimony and explained that most school districts (the bigger districts) had the ability to access the bond debt reimbursement program. He shared that as a result of the Kasayulie court case, the legislature had created an REAA school construction fund in 2010. The bill would grant five communities eligibility for the REAA school construction fund program, which would simultaneously address a potential log-jam on school construction capital improvement project list. He furthered that without the ability to bond or to access the REAA construction fund, the communities would not have another funding source outside a legislative capital appropriation. He clarified that the legislature had the ability to fund the school construction and maintenance projects; however, the legislature did not always have the ability to put the needed funds in the budget. Vice-Chair Neuman commented that small schools were not necessarily 5,500 or less. Representative Wilson asked if the term "small municipal school district" was used in any other locations in statute. Mr. Scott answered that the bill created and defined the term in Section 2. 4:09:07 PM Representative Wilson questioned whether the districts would have the same 70/30 structure as larger districts where the state pays 70 percent and the districts pay 30 percent. ELIZABETH SWEENEY NUDELMAN, DIRECTOR, SCHOOL FINANCES AND FACILITIES, DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, responded that the bill provided a funding source that would fund schools on the construction list in order. She continued that there would be funds available for the districts as they reached the top of the list for REAAs and small municipalities. She furthered that when a school was funded there would be a participating share paid by the district. The participating share had not changed and ranged from 2 percent to 30 percent. Representative Wilson looked at the definition of a small municipal school district on page 2, lines 1 and 2 of the bill. She asked if the numbers had been selected because anything above the amounts had bonding ability. Mr. Scott replied in the affirmative. Representative Wilson stated that she had no problem helping with bonding for school districts that did not have that ability. She wanted to be fair to all communities and noted that larger districts paid high property taxes to participate. She was comfortable that the bill would allow the small communities to make improvements and that they shared in the cost. She voiced support for the definition [for small municipal school district] used in the bill. Mr. Scott affirmed. 4:12:30 PM Representative Munoz thought that first class cities had the ability to bond. Mr. Scott replied that being a first class city did not give the automatic ability to bond. He detailed that the five communities did not have sufficient economic capacity to be granted bonds by a municipal bond bank. There were some first class cities in the unorganized borough that could bond. Representative Munoz understood, but stated that there was no statutory prohibition that would prevent the communities from bonding if they had the capability. Mr. Scott agreed. 4:13:45 PM DAVE HERBERT, SUPERINTENDENT, ST. MARY'S CITY SCHOOL DISTRICT (via teleconference), spoke in strong support of the legislation. He shared that the school district had originally been part of the Kasayulie case that had been settled in 2011. He explained that the settlement recognized that the method of funding new school construction in Alaska's schools needed to be fair and equitable. He shared that St. Mary's had been excluded in the final settlement negotiations because it was not an REAA school district (St. Mary's is a first class city school district). He explained that being a first class city school district required the city to make a mandatory local contribution to the school district each fiscal year to help offset its operation costs; whereas, REAA schools did not have a mandatory local contribution. He communicated that the district had taken the necessary steps to improve its position on the new school construction list through DEED. He elaborated on the steps the district had taken. He shared that currently the district was the only small municipal school district on the list that the legislation would apply to. Mr. Herbert furthered that the impact of the bill was minimal to the state, but was greatly important to St. Mary's. He relayed that most municipalities had bonding capacity and were eligible to receive up to 70 percent reimbursement from the state for new school construction. He detailed that there was only a small group of schools that did not qualify for the bond reimbursement or the REAA fund source. He stressed that the legislation would ensure that new school construction funding sources were truly equitable for all of Alaska's schools. He stated that the district had demonstrated its ability to provide quality education. He urged the committee and the legislature to pass the legislation. 4:18:32 PM TOM BEGICH, POLICY DIRECTOR, CITIZENS FOR THE EDUCATIONAL ADVANCEMENT OF ALASKA'S CHILDREN, spoke in support of the legislation. He shared that the organization was responsible for initially bringing the Kasayulie suit forward. He informed the committee that the legislation was the organization's number one priority and the top priority for its REAA members. He stated that the bill made a necessary correction to an error that needed repair. Representative Wilson asked for verification that the five school districts were the only districts that were not currently covered by a bonding mechanism. Mr. Begich replied in the affirmative. The group had reviewed the formula before the bill had been introduced to ensure that it would not unfairly penalize schools with the ability to bond. He added that because the bill contained a formula instead of specifying the five school districts it would allow districts to "pop" out of the category if their economic capacity increased. Representative Edgmon remarked that a significant amount of work had gone into the bill prior to its introduction. He believed the bill was a good compromise and noted its zero fiscal note. Representative Munoz appreciated the sponsors' who worked on the bill. She asked how the construction fund worked that had resulted from the Kasayulie case. Mr. Begich answered that the Kasayulie mechanism established in 2010 had been built on a fairly complex formula developed by Senator Lyman Hoffman's office and added to by the House Finance Committee. He elaborated that the formula looked at the bonding capacity for any given year for schools that were eligible for bond reimbursement and established a referential amount based on the number of schools that was deposited into the REAA fund annually. He stated that the REAA fund had a $70 million cap. He detailed that the idea was to encourage the spending of the available funds annually in order to rectify what the courts found was a biased process of funding schools in Alaska. Vice-Chair Neuman CLOSED public testimony. 4:22:15 PM Representative Kawasaki asked about a report on school construction and major maintenance. Mr. Scott replied noted that the report was available on the DEED website. Representative Kawasaki did not see a problem with the bill if its intent was to fix the ability for schools' ability to bond and to provide for funds. He believed a bigger question existed regarding how schools equitably received money for construction. He pointed to a Fairbanks school on the list for major maintenance that continued to move down on the priority list. He believed the overall issue should be addressed by the committee in the future. Representative Wilson asked how the school priority list for major maintenance worked. Representative Edgmon replied that the bill was not related to the major maintenance list. Representative Wilson clarified her interest in the construction list. Ms. Nudelman replied that the list was recalibrated each year; districts could reuse their application for one year. 4:24:27 PM Representative Costello addressed the one zero fiscal note from the Department of Education and Early Development. Representative Edgmon MOVED to REPORT SB 62 out of committee with individual recommendations and the accompanying fiscal note. There being NO OBJECTION, it was so ordered. SB 62 was REPORTED out of committee with a "do pass" recommendation and with one previously published fiscal note: FN1(EED).