HOUSE BILL NO. 106 "An Act relating to school bond debt reimbursement." 2:14:04 PM REPRESENTATIVE TAMMIE WILSON, BILL SPONSOR, invited testifiers to the table. Her intent was to discuss a change from how the program operated historically to make things more efficient and effective for school districts. HEIDI TESHNER, ADMINISTRATIVE SERVICES DIRECTOR, DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, OFFICE OF MANAGEMENT AND BUDGET, had Elwin Blackwell and Tim Mearig with her to provide as much information as possible about the debt reimbursement program. Mr. Blackwell would start off by providing a history of the program. 2:15:26 PM ELWIN BLACKWELL, SCHOOL FINANCE MANAGER, DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, explained that the program dated back to the early '70s when it was first enacted. In the early days of the program the state was paying 100 percent in a reimbursement back to municipalities. It was being done on a 2-year lagging basis. The municipality would make the payment and 2 years later the state would reimburse their payment. In the mid '70s the state changed the statute providing less than 100 percent reimbursement. The percentage of reimbursement decreased to 90 percent and remained on a 2-year lagging basis. In the late '70s there was a cash reimbursement portion of the program in which municipalities could appropriate money for a project rather than issuing debt. Municipalities could pay out of their current resources and be reimbursed for their expenditures by the state on a 2-year lagging basis. The cash reimbursement portion of the program was shut down in the late '80s. Mr. Blackwell continued that in the early '90s the program went to a 70 percent reimbursement, and the legislature started putting some parameters on how much principle the department could approve. Municipalities would issue projects to the state, and once the principle threshold was reached, the state would not accept any other projects. The money was divided based on the enrollment sizes of a municipality. The state decided to place a cap on the amount of reimbursement. In 1983, the state shifted to a current year reimbursement. He reported that the state remained at 70 percent reimbursement, and at different times the legislature would open up the statute incorporating a new section with new limits. Changes occurred 3 or 4 times. He reported that in 1999, the program was opened up and there was a slight change. Prior to the change, a school would have to qualify for space in order to receive reimbursement. For example, if a municipality was adding additional space to its school facilities, it had to show it had an unhoused student population to qualify for the need for additional space. For schools that did not qualify but wanted to develop additional space, the state would help participate on a 60 percent basis. The program stayed in place but had different amendments including different sunsets. 2:19:47 PM Co-Chair Wilson asked Mr. Blackwell to define "unhoused." She also asked why the state agreed to the 60-40 ratio if a district could not demonstrate the need for additional space. Mr. Blackwell responded that the "unhoused" question had to do with the state's space guidelines. He expounded that the size of a state school was determined by its student population. If a student population was greater than the size of a school, students were considered "unhoused." A school would qualify for additional square footage to provide adequate space based on the state's space guidelines. Mr. Blackwell recalled some schools that wanted to do remodeling also wanted to add more space. The legislature approved a lower split of 60/40 for schools without unhoused students. Vice-Chair Johnston thought the 60/40 ratio implementation had to do with projected overcrowding. She asked if she was correct. Mr. Blackwell responded in the negative. If a municipality could not show that they would have an unhoused student population but wanted more space, they would qualify for the 60/40 reimbursement ration. It allowed municipalities to add more space than they needed. Co-Chair Wilson commented, "I am pretty sure we did it to ourselves." Representative Knopp recalled about 5 or 6 years ago the department set new standards for square footage per student driving up construction costs. He asked if the department could comment. 2:23:04 PM TIM MEARIG, FACILITIES MANAGER, DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, relayed that the space allocation guidelines had not been revised since 2002. He was not familiar with any change occurring within the timeframe the representative referenced. He was happy to discuss space guidelines - the legislature's primary way of allocating resources for school projects and limiting the resource allocations to where they were needed. There were significant regulations and statutory language around the topic. Representative Knopp thought the timeframe might have been longer. He queried the criteria for a new construction project per square foot per student. Mr. Mearig relayed that the state had 3 different measures. He indicated that the square foot formula equated to approximately 165 square feet per student. The state had one square footage for elementary students (Kindergarten through 6th grade) of 124 square feet. The measures were spelled out in the state's regulations. He continued that each had a base student allocation with a supplemental allocation that helped to account for things required by code like circulation elements and mechanical spaces. The way the space standards were applied made a difference. He mentioned long-term storage needs in remote locations with limited barge service. Generally, the system was robust and had been looked upon with favor. Some constituent groups had recommended a review of the space guidelines. Representative Tilton asked about the changes made in 1999 regarding qualifications for space for unhoused students and the 60/40 ratio. She asked what percentage applied to schools that did qualify for space for the unhoused students. Mr. Blackwell replied that if a school qualified for additional space, the department would participate at 70 percent reimbursement with the municipality. Representative LeBon had been on the school board at a time when the municipality renovated the Hutchinson Career Center into a traditional stand-alone high school in 1998. He recalled that the discussion revolved around expanding the foot print of the building. The request the school district made was to add a gymnasium. He thought it was a good reason to ask for a waiver and expand a foot print. Co-Chair Wilson interjected wondering whether the project would fall under the 70/30 guidelines. 2:27:38 PM Mr. Mearig responded that Representative LeBon's example was appropriate. He referenced the Hutchinson Career Center, a preexisting building, and the desire to repurpose the space. There was a significant amount of space that was not anticipated. Similar projects led the legislature to be flexible with its limitations. He mentioned an area in statute that defined 4 standards that had to be met in order for a project to qualify at a higher percentage. Co-Chair Wilson mentioned Ryan Middle School and indicated that the project was essentially made into a 70/30 split with the help of a grant from the legislature. Representative Tilton spoke about eligibility for reimbursement versus state aide provided. She noted it went from 100 percent from 1991 through 2016 down to 80 percent in 2017 and back up to 100 percent. She wondered what happened in 2017. 2:30:18 PM Co-Chair Wilson guided the committee to start in 1999 moving up to 2017 first before addressing Representative Tilton's question. Mr. Blackwell picked up where he had left off in 1999. The state had limits on the amount of principle it could approve for reimbursement. In 2006, the program added 2 sections that included 60 percent and 70 percent reimbursements under the same kind of criteria. At the time, there were no limits on the amount of principle the department could approve. Originally, it was scheduled to sunset in 2008. However, the legislature extended the sunset date to 2010. In 2010, the sunset was removed altogether leaving the program open to whatever projects the municipalities could get the voters to approve, and they began to grow substantially. Mr. Blackwell continued that in 2014 the legislature was looking to sunset the 60 percent portion in statute and add a new section making the percentage 50 percent. In 2015, SB 64 [Legislation regarding school bond debt reimbursement] passed repealing 50 percent and shut down the program until July 1, 2020. For a little over 5 years the program would be shut down. He furthered that when the program came back online, sections were added that gave qualifying municipalities a 50 percent reimbursement, and those that did not qualify received 40 percent. Looking ahead, when the program reopened, the state would decrease the reimbursement by 20 percent for municipalities falling under either category. Mr. Blackwell returned to Representative Tilton's question about why the state dropped in 2017. He explained that 2017 was the year that Governor Walker vetoed 25 percent of the debt reimbursement program. He further explained that the reason it did not show as 75 percent and only 79 percent, was that when districts provided their figures of anticipated debt reimbursement for the following year, they included items such as anticipated bond sales. Sometimes the bonds were sold for less than they thought, the interest rates were better, or because of timing issues with the municipalities. Sometimes there was a small amount of money in the program left over due to changes. The department prorated the additional money the result of which left a 25 percent cut, but municipalities received 79 percent of what would have been due had the program not been cut at all. 2:34:48 PM Representative Josephson asked if the legislature ever declared it would not cover the amounts that had already been promised. Co-Chair Wilson relayed that it was Governor Walker who did not cover the promised amounts. She wondered if the bond reimbursement had not been paid at any other time in history. Mr. Blackwell responded that in the 80s, when the state had similarly challenging fiscal times, there were conscious reductions to the program. He recalled that Governor Cooper underfunded the program during his administration. He had not asked for 100 percent of what would have been needed. There were periods where the reimbursements were less than 100 percent. In those instances, they were conscious budget reductions. The program was underfunded, and the state prorated it out to the municipalities. Co-Chair Wilson mentioned SB 64 that passed. It was her understanding that the bill had a taskforce to talk about options for streamlining designs. She asked about design restraints and other sideboards prior to 2015. She wondered what had been done since the passage of SB 64 and the inception of the taskforce. Ms. Teshner replied that it was actually HB 278 [An omnibus education bill passed in 2014] that initiated the prototypical design study by the department. The report came out in October 2015. She asked Mr. Mearig to elaborate. Mr. Mearig added that the department had initiated a taskforce through a bill [SB 87 offered in 2017] that never passed. There had been some activities around the same themes with the current statutory committee put in place in 1993 by the legislature, the Bond Reimbursement and Grant Review Committee. He spoke of the committee being active every year which had worked to establish and improve the application process for school capital grants and bond debt reimbursement. The committee also reviewed the cost effectiveness of school construction and did some work in prototypical analysis. Over the prior 2 years the state had experienced a significant uptick in some of the areas including cost-effective school construction likely due to the introduction of SB 87. He was happy to answer any additional questions. 2:39:42 PM Co-Chair Wilson asked if the department was looking at how the state had done business. She suggested cost savings such as standardizing certain equipment. She wonder about the department's efforts in revamping the program. Mr. Mearig relayed that the department previously had a couple of initiatives. Throughout is tenure the department had an active process in implementing legislative parameters for controlling costs and getting the best value with state dollars. The department had the ability to review all applications and to adjust project requests in order to achieve cost-effective school construction. The department did an annual review of all applications that came before the department for major maintenance and school construction. The department had a qualified staff capable of reviewing systems and design. However, it did not have an active process in standardizing designs. Representative Josephson asked how other jurisdictions handled facilities management and construction. Mr. Mearig had been with the National Council of School Facilities. His membership had exposed him to the practices being used in other parts of the nation. He would be happy to provide information regarding other states' processes. The State of Washington had a state level contribution to school construction. The majority of the funding for schools in Washington came through county-level government and bonds passed in support of schools at the county-level. Mr. Mearig continued that school districts in Washington had their connection with those counties and autonomy and had responsibility for schools within each district. Each of them, much like in the State of Alaska, had autonomy to operate and make decisions for their school districts. The state had some standards in Washington that they had implemented. They had developed a high-performance school design criteria. The state had studied Washington's design model. In 1994, the State of Washington had been invited to help the Bond Reimbursement and Review Committee establish and application and statewide need basis. Alaska had partnered with Washington over the years. 2:44:57 PM Representative Tilton wondered what type of criteria was applied in districts losing or gaining population. Mr. Mearig answered that the state required all applicants wanting to add space to provide the department population projections. The department allowed for those projects that needed space additions to perform a 5-year post-occupancy projection. The State of Alaska was very aware when the information was not being provided. There could be growth or decline in a district that the department was not aware of because of a district not recently participating in the annual cycle of submitting grant applications to the department. The department had various tools to look at the demographics around the state. Representative Carpenter wanted to understand the difference between qualifying and non-qualifying ratios under SB 64. He wondered if it had to do with the unhoused student population criteria from earlier in the discussion. He asked for a definition for qualified and unqualified. Mr. Blackwell responded that the representative was correct. It would be based on whether a person qualified for the space. It would determine whether the ratio would be 40 percent or 50 percent - once the program reopened again. Representative Carpenter asked if there were figures regarding the status of unqualified or qualified. He wondered about the preponderance of need - unqualified or qualified. Co-Chair Wilson asked if the committee should be referring to the report by the Department of Education and Early Development. Mr. Blackwell would have to look at how many projects were splitting out at 60 percent and how many were splitting out at 70 percent currently. He pointed to a handout in member's packets showing estimated state aid with October 15th at the top of the page. Ms. Teshner asked if Co-Chair Wilson had the handout. 2:49:28 PM AT EASE 2:49:54 PM RECONVENED Co-Chair Wilson indicated that the information would be posted on basis. She asked Mr. Blackwell to answer Representative Carpenter's question. Mr. Blackwell reported that about 75 percent of the open reimbursements were at 70 percent and about 25 percent were at 60 percent. Ms. Teshner added that there was one district that had an 80 percent reimbursement and one district had a 90 percent reimbursement under the old percentages. However, the majority of them were under 70 percent. Co-Chair Wilson relayed that the only change reflected in HB 106 was to extend the moratorium to 2025. She hoped the department would provide additional information about whether it supported the legislation. She wondered if new sideboards should be added. She referred to a report over 100 pages that provided additional information. She conveyed that the bill had a zero fiscal note. Vice-Chair Johnston MOVED to report HB 106 out of Committee with individual recommendations and the accompanying fiscal note. Representative Josephson OBJECTED for discussion. He thought the bill made sense based on the current fiscal challenges. He noted speeches made on the House floor in the current day about new revenue. He advocated new revenues. He thought a 10-year moratorium was a long duration but thought HB 106 was a good bill. Vice-Chair Johnston thought it was important for policy makers to have time to adequately review its policies. Representative Josephson WITHDREW his OBJECTION. There being NO OBJECTION, it was so ordered. HB 106 was REPORTED out of committee with a "do pass" recommendation and with one new zero fiscal note by the Department of Education and Early Development. Co-Chair Wilson reviewed the agenda for the following day.