SB 42-FOUNDATION FORMULA INCREASE    RICHARD BENAVIDES, staff for Senator Davis, introduced SB 42 for Senator Davis because she was attending a HESS committee meeting. He described it as an issue that has been a priority this year due to the recognition that current levels of funding have not kept up with teaching costs. SB 42 would help alleviate the most unpredictable reason for the erosion by inflation proofing the foundation formula. Inflation has risen about 30 percent in the last 10 years and the legislature has increased the base foundation formula by only five percent. During the same time, the required local contribution has risen about 37 percent. There are many examples of rising school costs such as fuel or electricity increases and this legislation allows school districts to continue to operate without eliminating positions due to those types of increases. This action would not bind future legislatures. Each legislature would have the power to determine the appropriate level of funding for each fiscal year. CHAIRMAN TORGERSON said he had prepared a CS to change the effective date from 2001 to 2002. SENATOR PHILLIPS moved the CS \J version as the working document. SENATOR LINCOLN objected for the purpose of asking for an explanation of the difference is between "preceding fiscal year" from page 1, line 7 of the original bill and "preceding calendar year" on page 1, line 7 of the CS \J version. She wondered whether the change is supposed to coincide with the effective date and whether the new language is acceptable with Senator Davis. MR. BENAVIDES said the language was acceptable with Senator Davis. SENATOR LINCOLN withdrew her objection. SENATOR PHILLIPS commented that he thought some school districts are on a calendar year versus a fiscal year. EDDY JEANS, school finance manager for the Department of Education and Early Development, said the purpose of the language "second preceding calendar year" is because of the timing in which the TPI index comes out. This allows the appropriate increase to be built into the budget for the upcoming year. Both the department and the administration support the bill. School districts have lost 25 percent of the purchasing power they had 10 years ago. Chairman Torgerson represents a school district that struggles to meet their budget. The municipality contributes to the CAP on an annual basis and yet the school district has increased costs of personnel services through salaries and benefits of over $1 million per year. This must be absorbed from other programs. The department believes it is time to provide some inflationary adjustment in the foundation formula. VERNON MARSHALL, executive director of National Education Association (NEA) Alaska, said inflation is a cruel and unavoidable tax. There is no avoiding that inflationary payment and kids have felt that tax in terms of missed educational opportunities. Unless inflation is offset it will be charged against current capacity. At a time when both teaching and learning standards are being improved it is time to stop "the hemorrhage of academic depreciation and the effects of inflation." Retirement incentive programs (RIP) have been used to offset inflation. Data from the American Federation of Teachers (AFT) clearly shows ground has been lost in terms of employee salary as a percentage of education expenditure. At the same time, in relation to other states ground has also been lost in terms of school operational costs. For the year 1999-2000 they estimate that teachers salaries are approximately $1,000 to $1,100 less than they were in 1998-1999. This could be caused by retiring of experienced teachers at the high end of the scale and hiring teachers lower on the salary scale but the $1,100 times the approximately 8000 teachers, equals $8,800,000 that has come out of experience to be put back into the classroom and programs. Part of the cause of that is because inflation is not offset. He closed in saying that they support the efforts of the committee and will work together but asked for stabilization of the funding for children in the future. It is a wise move for the State of Alaska because schools are thrown into a catch up race when inflation is not offset and the children will never win. SENATOR LINCOLN asked for explanation of the ranking on a sheet handed to committee members. MR. MARSHAL said the figures on the far right indicate the percent change during the decade. It's a comparison of the state's percent of the U.S. average over the ten year period. SENATOR LINCOLN said Alaska was ranked #1 in 1988-1989 and number 6 in 1998-1999. MR. MARSHAL responded Alaskan teacher's salaries ranked #1 ten years ago. The ranking does not reflect 1999-2000 and 2000-2001 and they believe the RIP has had a significant impact on schools. They believe that the ranking for 1998-1999 is actually 8 rather than the 6th place shown. Using the percentage as a part of the national average our ranking today is 51st. SENATOR LINCOLN moved CSSB 42 from committee with individual recommendations and accompanying fiscal note. There were no objections.