TAPE 93-12A, SIDE A Number 000 CHAIR BUNDE called the meeting to order at 3:04 p.m. and noted members present. He announced the meeting would be teleconferenced as listen-only to Delta Junction, Soldotna, Ketchikan, Kenai, Tok, Valdez, Juneau and Anchorage. CHAIR BUNDE announced the committee would hear presentations on HB 82 and HB 83, but to gather information only, not to take action on the bills. HB 82: SCHOOL CONSTRUCTION & MAINTENANCE GRANTS Number 020 COMMISSIONER JERRY COVEY, OF THE DEPARTMENT OF EDUCATION (DOE), began his overview of HB 82 and HB 83. He introduced Gary Bader, director of Educational Finance and Support Services for the DOE. COMMISSIONER COVEY began his discussion of HB 82, regarding school construction and major maintenance grants. He said that many people involved in the Alaska 2000 committee process focussed on school construction issues. The committee included legislators, school facilities officials from urban and rural Alaska, architects, engineers, estimators, plus facilities officials from some school districts or borough governments managing school facilities. Over four months, the committee arrived at 12 recommendations on facilities, which the department evaluated through public hearings and developed into HB 82. Number 118 COMMISSIONER COVEY said the bill is aimed at developing a practical plan to address school facilities' needs across Alaska and to gather support for such plans. The department is required by statute and regulation to follow the current facilities funding process, known as the HB 37 process. They want to identify two grant categories: major maintenance and school construction. Major maintenance grants, currently included in priority levels three and four of the HB 37 process, would address buildings violating building codes. School construction grants, currently included in priority levels one and two of the HB 37 process, would address life, safety and safety issues raised by overcrowded schools, he said. COMMISSIONER COVEY stated the current process requires the department to start at the top priority item and fund projects in descending order of priority as long as funding holds out. The problems with this process are demonstrated by the allocation of $25 million for capital school projects and the presence of at least $75 million in priority one projects alone. He said the process which has been in place for the last three years has not worked because there is not enough money to fund any more than the top 15 projects, while the increasing numbers of priority level two projects to ameliorate overcrowded schools never get funded. Also, it encourages school facility administrators to inflate their maintenance and code violation problems into health, life and safety problems in order to get greater priority. COMMISSIONER COVEY said the process in place has not worked in part because it has not been funded. His department's solution is to increase funding and to spread it out around the state. He said there are reasons why some school districts do not show up on the construction projects wish list. One reason is that, because the process has been inadequately funded, some districts do not consider it a serious source of construction funds when they can get money from legislative grants. Other districts do take it seriously and follow through with the process. The department can only deal with the projects on the list, he said. Number 200 COMMISSIONER COVEY stated that HB 82 would require each district to share the cost of any school construction or maintenance project, to the extent it can afford to do so. The bill includes a matching spending formula, which establishes a ratio of taxable real personal property value per student, derived by comparing the taxable property in a school district with the district's average daily attendance. The bill also allows a way to gradually phase in a local contribution from the Rural Education Attendance Areas (REAA). It set the maximum local contribution from an REAA at 75 percent of the assessed value of the state's poorest organized community, which is St. Mary's. That maximum level of contribution, which comes to 3.8 percent of any request, would be phased in over four years. Number 240 CHAIR BUNDE thanked Commissioner Covey, and voiced his support for local contributions from school districts. He asked how proposals to establish minimum student populations for maintaining a rural school district would affect the proposed bill HB 82. COMMISSIONER COVEY said the DOE is considering addressing the problem of small districts, but not in statute. He said the department is considering raising the minimum number of students in a district from five, a number which was set arbitrarily, to ten students in five years. CHAIR BUNDE asked whether consolidating schools would affect the department's list of capital improvement requests. COMMISSIONER COVEY answered that he suspected the list would change considerably because with more local funding districts will pay more attention to their construction grant requests, focussing less on what they would like if the state bore the entire cost. Number 278 CHAIR BUNDE asked if there was support from smaller districts for the plan, and asked when he expected the reprioritization of the list to occur. COMMISSIONER COVEY answered that support among smaller districts was mixed, with some feeling they should not have to make any local contribution at all. He said that, if HB 82 were to pass, then changes in the districts' funding request lists would likely begin showing up in the requests this fall for FY95, as school districts start their six-year plans this spring with the understanding that the funding process is going to be significantly changed. He said the department's two bills, HB 82 and HB 83, would also create building codes and standards to prevent districts from over- or under-building their structures. Number 315 (Rep. B. Davis arrived at 3:20 p.m.) CHAIR BUNDE encouraged those people listening to the meeting from teleconference sites to submit questions. REP. BRICE asked why priority one and two schools were combined, instead of priorities one, three, and four, and breaking priority two schools out separately. Number 320 COMMISSIONER COVEY answered that the department was attempting to get away from the old system in which funding did not last long enough to fund priority two projects. He said the department wanted first to make sure each district got some money from the program so as to ensure support for the plan, and second, to direct some money at smaller problems before they became major problems. REP. BRICE said he has heard the HB 37 process has not worked well, especially in funding priority two projects. He supported the idea of breaking out maintenance grants separately. Number 366 COMMISSIONER COVEY said that even the old process addressed priority one projects. He said the plan as presented would take all of priority ones, 20 percent of priority twos, all of priority threes and half of priority fours. And, in the next year, funding would be provided to take care of the remaining 80 percent of priority two projects, dealing with overcrowded schools. He added that the department wanted to present a rational, reasonable and defensible plan to address the needs of schools. He said the department remained open to committee suggestions. Number 390 REP. AL VEZEY asked if the department's proposal to establish a property value per student ratio for setting required local contribution required an annual survey of property values to determine full and true value. Number 400 GARY BADER, DIRECTOR OF THE DIVISION OF ADMINISTRATIVE SERVICES IN THE DOE, answered that the property assessments would be based on the Department of Community and Regional Affairs' surveys, on their regular schedule. REP. VEZEY said it would be easier for a taxpayer to understand that ratio as taxable value per average daily student membership, or the tax base per student. MR. BADER said the DOE was attempting to exclude any exemptions that might be allowed in a community's property tax code. REP. VEZEY asked clarifying questions about HB 82, which Mr. Bader answered. Rep. Vezey said that requiring a 5 percent contribution from smaller school districts, with less than $100,000 per average daily membership, was not enough to encourage such districts to be responsible for their construction plans. Number 450 COMMISSIONER COVEY responded, acknowledging urban concerns that REAAs do not have to pay anything for construction of their schools. He said the DOE plan in HB 82 and HB 83 is significant in that it marks the start of requiring REAAs to pay any money at all for their schools, and leaves the possibility open to raise local contributions even more later. He said many of the Alaska 2000 proposals are designed to provide gradual transition to a new way of doing business. He noted that some REAAs have not had to pay for any of their own construction during their 20 years of existence. Number 490 REP. VEZEY asked if the department had considered balancing the per-capita distribution of money, which he considered a fair method, and a (unintelligible) basis. Number 500 DUANE GUILEY, DIRECTOR OF THE DIVISION OF EDUCATION FINANCE AND SUPPORT SERVICES FOR THE DOE, said the Alaska 2000 committee had considered a per-capita funding for construction, but found that any such proposal would not allow them to clear the existing backlog of life-health- safety projects and unhoused student projects on the current priorities list. The committee felt they should first fund the projects on the current list or on some other needs- based list, then possibly later move to a per-capita based list that might even be merged with the foundation formula, as is done in some other states. Number 513 CHAIR BUNDE asked if there had been public response to the proposal to fund school construction through the undistributed earnings of the Permanent Fund. He encouraged committee members to tell their constituents about that element of the bill, and to solicit public comment. Number 520 COMMISSIONER COVEY answered that he had not heard much feedback, though the department was planning a public information campaign on the proposal that would probably generate public comment. The campaign will describe the undistributed earnings from the Permanent Fund as extraordinary earnings available even after contributions to the Permanent Fund, inflation-proofing, and dividends. Number 544 CHAIR BUNDE noted that the Kenai Peninsula Borough School District had sent documents by facsimile machine indicating support for the proposals, with some provisos. REP. BRICE asked Commissioner Covey to walk through the flow chart on page 12 of the DOE information packet on HB 82. REP. CYNTHIA TOOHEY said the DOE educational campaign needs to make very clear that the bill would be funded by the Permanent Fund's undistributed earnings and that the impact would not be felt for 20 years. She further asked how the state could avoid getting into a similar situation in which school construction and maintenance was underfunded, in which school districts built not uniform schools but individual custom schools, which in some cases leaked water within a year of construction. She said dipping into the Permanent Fund earnings should be a one-time occurrence. Number 572 COMMISSIONER COVEY said there is a way out of the current situation. The DOE is proposing that a one-time use of the Permanent Fund earnings over the next four years would clear up the backlog of construction projects and cut in half the bonded indebtedness that doubles the cost of construction. Decreasing bonded debt would free up an additional $60 million per year for school construction. But according to the committee's estimates, growing school populations will require about $100 million per year in new construction, he said. The current facilities are inadequate to revitalize the state's educational system, he said. He added that many districts have simple plans ready should they need another elementary school, plans which are not site-specific. Number 600 MR. BADER proceeded to discuss the flow chart included on page 12 of the departmental handout on HB 82, which outlines the current HB 37 process of funding school construction projects. He said districts submit a six-year capital plan to the DOE by September 1. The DOE categorizes the grants, then prioritizes them in each category and publishes the list by November 5. Districts may appeal the rankings through a three-step process. The first step is a public hearing by December 1, which results in a new ranking list, which is subject to a second appeal. The department must appoint a neutral hearing officer within 15 days who issues a report to the state school board, which may accept or reject his opinion. As a third level of appeal, districts may still appeal to the Superior Court. Number 653 REP. BRICE asked if the current appeal system would remain under HB 82. COMMISSIONER COVEY responded that it would. REP. BRICE asked who would serve as the hearing officer and who served on the team that evaluated districts' grant request. Number 650 COMMISSIONER COVEY answered that hearing officers are usually people outside the DOE, and the hearing officer this year was a private attorney in Anchorage. He said the evaluation team is comprised of civil servants who are long- time department employees with experience in facilities. Number 666 REP. TOOHEY expressed the opinion that the long appeals process was why government has a bad name. She asked how many schools engaged in appeals last year. COMMISSIONER COVEY answered that 14 appeals went to first public hearing last year, and three of them led to hearings last week in Anchorage. REP. TOOHEY expressed the opinion that the appeals process was very expensive, complicated and ineffective. COMMISSIONER COVEY said the appeal process was similar to the state procurement code. He noted that 14 appeals out of 168 projects was not an excessive number. Number 685 TAPE 93-12A, SIDE B Number 000 REP. BETTYE DAVIS apologized for being late to the meeting. She expressed satisfaction that education was receiving attention and early discussion. She complimented the governor and DOE for identifying the problems and presenting a proposal to remedy them. But she expressed the opinion that the HB 37 process was not working because it was not funded sufficiently to meet even all the priority one grant requests. She said the proposal in HB 82 was a step in the right direction to address the state's problem with crumbling and overcrowded schools, and the legislature would eventually decide on a funding source. She said she was unhappy Anchorage would not get as much as she would like at first, but accepted that for the greater good. She said it has been difficult for districts to submit grant requests when they knew there was no money to fund their requests. HB 83: APPROP:SCHOOL CONSTRUCTION GRANT FUND Number 064 CHAIR BUNDE brought to the table HB 83, and repeated that the committee was taking no action on the two bills, but only gathering information on them. COMMISSIONER COVEY said HB 83 was an appropriations bill that goes along with HB 82. It directs $107,688,000 to a school construction grant fund for life-health-safety issues and for unhoused students. The bill's second section directs $42,312,000 to fund major maintenance and repairs. REP. BRICE asked about the process for making appeals of state construction grant decisions. He referred to page two of the bill, line 18, an $8.8 million allocation for an elementary school addition in the North Star Borough School District, which he believed was not as important as others, but to which he believed the local school district would probably accede rather than enter the long, difficult appeals process. He invited Commissioner Covey's comment. Number 130 COMMISSIONER COVEY said regulations limit how the DOE may classify priorities. He admitted that in some cases, local districts may see their highest priorities given lower priority in the state's evaluation and categorization process. He said some school administrators have expressed an interest in revisiting the priority criteria to prevent such problems. Number 152 CHAIR BUNDE expressed disagreement with Rep. Toohey concerning the appeals process, saying he believed that, though complex, it provided ample opportunity for districts to shape how they would be affected by departmental appropriations. REP. GARY DAVIS asked whether there was any mechanism in HB 83 to require local districts to be responsible for maintenance. COMMISSIONER COVEY said that the state would require districts to prove they had adequately maintained existing facilities on their own as a condition of future funding. REP. G. DAVIS mentioned new school construction, which in some cases had suffered leaking roofs, and said he believed strongly that each district should ensure quality of construction on its own by requiring performance bonds. Number 198 COMMISSIONER COVEY said the DOE shared those concerns. REP. VEZEY asked for help from departmental staff in formulating more questions about the bill. COMMISSIONER COVEY said he and his staff stood ready to answer questions. CHAIR BUNDE repeated his belief that the committee and DOE should consider their work an ongoing process to develop the bills. Number 230 REP. BRICE asked whether the DOE's list of projects represented firm commitments, or whether there was room for negotiation. COMMISSIONER COVEY indicated that, while the DOE had provided a rational plan, it was up to the legislature to set the final list. Number 248 REP. TOOHEY asked Commissioner Covey to provide new copies of the grants list, including information on the date each school was built, its capacity at construction and its present capacity. CHAIR BUNDE asked the addition of the school's enrollment as well, as distinct from capacity. REP. IRENE NICHOLIA said she had visited some of the schools on the list and was glad that the DOE was doing something about them. She said it was a shame that building codes could prevent the use of an existing vocational education facility. She thanked the department and the governor for submitting the bill. REP. G. DAVIS asked about an item on page three of the bill, line nine. He asked whether the $298,400 for the Kenai Peninsula Borough schools addressed problems with the Tustanema School, the district's top priority. GARY BADER said that was one project that had been moved up in response to public hearings. The determination that the relocatable classrooms had exceeded the core capacity of the facility earned the school a spot on the list, he said. Number 300 REP. G. DAVIS referred to page two, line 24, and asked the location of the Kashunamiut School district. COMMISSIONER COVEY answered that the district was near Bethel in Southwest Alaska. Number 314 There being no further questions, and no further business before the committee, CHAIR BUNDE ADJOURNED the meeting at 4:04 p.m.