Number 359 CHAIR TOOHEY brought HB 533 to the table and said it was not her intent to move the bill out of committee that day. She asked Duane Guiley to come forward to answer questions. HB 533 - ALLOWABLE EFFORT FOR SCHOOL FUNDING DUANE GUILEY, Director, Division of Education Finance and Support Services, Department of Education, testified on HB 533. He stated that the legislation would provide an opportunity for districts to assist in the budget process of running schools with locally contributed dollars without putting additional burden on the state of Alaska. He indicated that under current state statute, the maximum amount that a district can contribute is 23% of the current year's basic need as adjusted for the actual appropriation, or the prorated dollar amount of basic need. MR. GUILEY indicated that the reason for the cap is so that the state of Alaska stays in compliance with the federal test, in order to recognize $43 million of federal impact aid in the state formula. He maintained that the bill proposes to raise the cap to the federal limit of 25%. He explained that the actual local contribution is not known until after the year is closed out and audits are received by the Department of Education (DOE). At that time, the DOE calculates the actual disparity amount and makes adjustments to school district's total state aid. He indicated that the DOE had just completed adjustments for the 1993 fiscal year in the month of March 1994. He said if the limit is raised to 25%, the state would be asking districts to retroactively return any excess local contribution to the municipality or borough after the year has ended and the money is expended. MR. GUILEY further explained that in the past the cap has been less than 23%. He said when the bill that created the current foundation formula passed in 1987, the cap was 21%. Based upon the request of local school districts, to raise that cap to allow for additional contributions, the bill was amended and raised to 23%. He indicated that if the cap is raised to 25%, there is additional capacity provided to districts throughout the state that would total $11,397,318. He said, "That again is the amount of additional capacity that would be afforded to local municipalities and boroughs, additional contributions to the budget, and staying within the 25% level." Number 453 REP. B. DAVIS asked for clarification regarding municipalities asking for rebates up to a certain amount. MR. GUILEY explained that the disparity standard controls the actual limit in order for the state to stay in compliance with federal law. He said once the audits are submitted, the process of confirming actual local revenues begins. He indicated that prior to that time the DOA works from the budgeted number. He said if a district actually contributes more than they are allowed under law, the DOA asks the district to refund local money. REP. B. DAVIS said she understood. Number 482 REP. BUNDE said he had heard that the 25% might cause some concern regarding federal regulation. He asked Mr. Guiley why 25% is a better level for the legislation. MR. GUILEY indicated that under current statute, the cap is at 23%. He said the DOE has already gone on record supporting an increase to as high as 24% and have indicated that under the current disparity calculation it is not problematic in relation to the federal regulation. By raising the limit to the full 25%, the state may be put in a situation where districts would be asked to retroactively return local dollars or put them out of compliance with state statute which would keep them from receiving any state aid. MR. GUILEY further explained that the choice a local school district has is to continue to receive the excess local dollars and forfeit 100% of their state aid or give back a minimal of excess local dollars that put them over the 25% cap should the legislation pass. He pointed out the bar graph schedule supplied in the committee bill packets and explained that it demonstrates the effects of the cap. He pointed out that the white bar indicates the four mill minimum contribution. He explained that the three exceptions to the rule are North Slope, Unalaska, and Valdez. He said their four mill contribution exceeds 35% of basic need and therefore a different cap applies to those districts. He indicated that the shaded bar represents the maximum allowable excess. He stated that the district of Hoonah contributes absolutely all they can to their local budget. He indicated that where there are black diamonds at the top of shaded bars, it represents the districts that would benefit from the legislation. He said those districts could choose to assist their schools with a greater amount of local contribution without fear of losing state aid. Number 556 REP. BUNDE stated that he supported the bill as it would encourage local support for school districts at a time when the state has to do more with less. He said federal regulation keeps the state from going beyond 25% and the state should allow and encourage districts to come as close to 25% as possible. CHAIR TOOHEY asked Mr. Guiley if the areas affected by the legislation would have to vote on the issue or would it be an automatic option. MR. GUILEY indicated that if the revenue is available to a municipality or borough, through their budgeting process they would provide an amount requested by the local school district. Under state statute, school districts must provide their request to the municipality by April 1. He said once the request is provided, the district has 30 days to act on it through their budget process. He indicated that the money may be available already to the local municipality without an increase tax revenue or other sources of revenue. If the money is not available, it might result in additional tax increases through sales tax, bed receipts, fish tax, federal forest receipts, or any other source of revenue to meet the need if they have the desire. Number 612 CHAIR TOOHEY stated for the record that she rescinded her statement that the bill would not be moved out of committee that day. REP. G. DAVIS indicated that some local taxes need tax payer approval and some assemblies and council have the authority to raise taxes without voter approval. He said it depended on what tax they want to obtain it from and how their ordinances read. REP. BUNDE observed that nothing in the proposal requires local taxes to be raised. He said it allows those that would like to assume more responsibility for their school district to do so. He reminded the committee that the state may not fully fund education this year and that local municipalities could assume some of that responsibility if they choose to do so. Number 640 REP. NICHOLIA asked what type of impact the formula would have on school districts, single sight school districts, and REAAs in rural areas. Number 645 MR. GUILEY stated that the proposal would provide an equal opportunity for all organized municipalities and boroughs to provide additional support to their school districts. He said there is no opportunity for local contributions regarding REAAs. He indicated that the state of Alaska funds basic need at 100% in the case of REAAs without a local contribution requirement. REP. NICHOLIA asked what impact the legislation would have on Galena or the Tanana city school district. Number 671 MR. GUILEY directed the committee's attention to the schedule included in the bill packets that indicates that Galena could contribute an additional $14,756 at a 1% increase which would be 24% total. He said under the proposal Galena could contribute an additional $29,512 if they are already at the cap. He said, currently, Galena is not at the cap so they do have additional contribution capacity within existing statute. REP. NICHOLIA asked Mr. Guiley if he has been in contact with Galena so they could comment on the formula. MR. GUILEY responded he had not been in contact with any specific district so that they might comment, but he indicated that attached to the sponsor statement is a schedule of what Galena currently contributes to the local school district. He asserted that under the existing statute, the total allowable excess is $360,000 over the required local effort, giving a total allowable contribution of $440,000 compared to the $253,000 that Galena currently budgets. He said Galena may not benefit from the statute because they are not currently contributing at the cap but may find themselves in that situation in the future. Number 711 REP. NICHOLIA stated that she had concerns regarding the legislation. She indicated that HB 533 was first introduced March 16, 1994, while she was attending a conference in Fairbanks. She said she had not had time to speak to her school districts about the bill. Number 721 REP. BUNDE reiterated that the legislation does not require local districts to do anything, it allows them to take responsibility if they wish. REP. VEZEY observed that there are not very many areas that will be affected by the legislation. MR. GUILEY clarified that the bill provides opportunity to districts that have the desire to contribute more. He said, "So those districts that are currently at the cap, or in the event if we have proration, the cap is applied to the prorated dollar amount. That would change the schedule somewhat and more districts would find themselves closer to that cap. So, especially in the event of proration, you may find more districts than what are indicated here in the position to take advantage of this legislation, should it pass." Number 758 REP. VEZEY asked if his observation is wrong, as he saw only three or four communities currently that would benefit from the bill. MR. GUILEY said Rep. Vezey is correct. He stated that historically Ketchikan, Kenai, Fairbanks, and Juneau have been the four districts that have repeatedly contributed very close to the cap. REP. G. DAVIS offered to Rep. Vezey that the legislation would allow those districts that are in "dire straits" to gain more funding. REP. B. DAVIS indicated that there may be only a few districts at the cap currently, but in the future other districts would have the opportunity to rise to that maximum, especially if state funding is cut back. She said, "Anchorage, for example, does not reach the cap that's set by, we reach the artificial cap that we have in our city, but not what's set here. But, that would give us an opportunity to do it should there be a need to do it." She reiterated that the legislation would be beneficial to other districts in the future. Number 805 REP. BUNDE made a motion to pass HB 533 out of committee with individual recommendations and accompanying fiscal note. CHAIR TOOHEY asked if there were any objections. REP. OLBERG objected. CHAIR TOOHEY called for the vote. Reps. Toohey, Bunde, G. Davis, Vezey, B. Davis, Nicholia, and Brice voted "Yea" and Rep. Olberg voted "Nay." Chair Toohey declared that HB 533 was so moved. (Chair Toohey handed the gavel over to Rep. Bunde to preside over the remainder of the meeting.) Number 845 CHAIR BUNDE indicated that there would be teleconference testimony starting at 3:45 p.m. (Chair Bunde took a brief at-ease from 3:30 until 3:45 p.m. to accommodate teleconference testimony.)