SB 139-EDUCATION: FUNDING/TAX CREDITS/PROGRAMS  9:16:39 AM CHAIR STEVENS announced that the final order of business would be SB 139. He said the committee will deal with two portions of the bill, charter school funding found in Section 9, page 7, and the tax credit in Sections 21-31, pages 11 through 17. CHAIR STEVENS began with charter school funding. SUSAN MCCAULEY, Ph.D., Director, Teaching and Learning Support, Department of Education and Early Development (DEED), Juneau, Alaska, presented information on SB 139. She introduced herself. 9:17:51 AM MARK HANLEY, Commissioner, Department of Education and Early Development (DEED), Juneau, Alaska, presented information on SB 139. He stressed the importance of the language beginning on line 4 in Section 9: "The budget shall not be less than the amount generated by the students enrolled in the charter school, less administrative costs retained by the local school district." He said the idea is that students generate funds through the district funding formula. He pointed out on line 7, the amount generated by students is clarified: "The amount generated by students enrolled in the charter school is to be determined in the same manner as it would be for a student enrolled in another public school in that school district." He said the idea behind current language in statute is equity. COMMISSIONER HANLEY explained the separate organizational structure of charter schools. He said there is a parent group that provides oversight, but he maintained that they should be funded in the same manner. Language beginning in line 9, clarifies what that funding entails: special needs funding, secondary vocational/technical instruction funding, and pupil transportation funding. The first two funds are a part of the per-student formula or the BSA formula. Pupil transportation is also driven by student enrollment, but is a separate formula. CHAIR STEVENS asked if, at present, those three are a part of charter school funding. COMMISSIONER HANLEY said not necessarily. He opined that current statute includes says "these are funds generated by a student." However, he agreed it is open to interpretation by school districts. Some districts provide transportation; some provide special education services. The bill clarifies and provides equity. CHAIR STEVENS concluded that this provision would not have an impact on a district's budget as they are already receiving the funding. COMMISSIONER HANELY said that is correct. Some districts might have to provide additional funding to charter schools. 9:21:42 AM SENATOR GARDNER said there are neighborhood public schools where all students must be accepted, including students with special needs or transportation needs. There are also optional schools filled by lottery programs. She said in her school district, alternative schools do not receiving transportation and can decline to take a student with special needs. She asked if charter schools could decline to accept a special needs student. COMMISSIONER HANLEY stated that a public school cannot refuse special needs students. Charter schools also cannot refuse special needs students. SENATOR GARDNER said it makes sense then that charter schools get special education funding. She questioned whether districts who do not currently provide transportation funding to charter schools will be required, and able, to provide it. COMMISSIONER HANLEY said the key is the contract between the charter school and the district on how those services will be provided. Currently, public schools share special education services and transportation can be the same way. Some districts already do provide transportation services. The bill is recognition that students are generating funds for transportation and should have access to transportation in some manner. 9:26:00 AM CHAIR STEVENS summarized that currently money for transportation goes to the district, not to each school. The bill recognizes the obligation of the district to use those funds for the charter school. He said this might allow the charter school to use transportation funds for ways other than transportation. COMMISSIONER HANLEY provided several examples of uses of transportation funds for charter schools. The funds are in the form of block grants and are not monitored or tracked by the state. A district could use the funds in a variety of ways. Technically, charter schools could reallocate transportation funds for other uses. 9:27:46 AM SENATOR GARDNER said the provision opens a can of worms. If there is no fiscal note, the district has "x amount." Some schools must use the funds to provide transportation, but the funds will also be sent to charter schools that have no busses. Therefore, funds are being siphoned from neighborhood schools that have to bus and given to charter schools that can't provide busing. She questioned the idea of paying to "offset carpool fees." COMMISSIONER HANLEY replied that it would hurt a district if it was generating funds for those students and not providing any transportation services. He discussed how a district might provide services, such as drop-off spots. DR. MCCAULEY noted that the intent is that there is some level of service for the student. She said transportation funds are generated by all students. There is currently no language that requires students to receive benefits from the funds they generate. The intent is not to undermine a school district. She provided an example in the Mat-Su District several years ago. The approach was to identify pick up locations along existing routes to include charter school students. She described a level of transportation agreed upon by the district and the charter school. CHAIR STEVENS asked if that plan achieved equity. DR. MCCAULEY said yes. She continued to say what is inequitable is not providing any transportation funds for charter school students. SENATOR GARDNER asked about transportation funding for non- charter, alternative schools. 9:33:53 AM COMMISSIONER HANLEY said optional school students also generate transportation funds, but it is a district policy on the transportation component. Transportation was not provided for optional or charter schools in Anchorage. He said the exception was Rogers Park School. SENATOR GARDNER asked if Northern Lights, ABC School, and Polaris receive transportation funds under the current formula. COMMISSIONER HANLEY said the school district receives funding for those students. SENATOR GARDNER asked if those schools receive the funding. COMMISSIONER HANLEY said no. A school has a separate budget as generated by the district. SENATOR GARDNER asked why Section 9 applies only to charter schools and not to alternative schools. COMMISSIONER HANLEY explained that charter schools operate under academic policy committees, which is different than an optional school. There is a significant difference in the structure and management of an optional school. SENATOR GARDNER said it does not make sense, if talking about equity of funding and students generating the funds. She said she does not understand why other alternative schools are not included in the bill. 9:36:30 AM DR. MCCAULEY clarified that comparisons between charter schools and non-charter schools are very different. The structures for operation are very different. Alternative schools fall under all district support systems, whereas charter schools do not. The intent of the bill is to provide equity and clarity for funding charter schools. SENATOR GARDNER said she is aware of the inequities for funding charter schools and has sponsored bills to address it. However, she said her legislation has a cost to the state because it does not "cannibalize" the rest of the district to provide what charter schools aren't currently getting. Even though alternative schools fall under the support of the district, they do not receive transportation funds. She argued that if a charter school will receive transportation funds under SB 139, alternative schools should also. SENATOR GARDNER asked how charter schools fund special education. She asked if the district provides funding or if the funds come out of the 25 percent administration fee. DR. MCCAULEY said it varies district to district. All districts have a requirement for all students to ensure that when the students have IEP's, that they are accountable to goals of the IEP's. Some districts, as part of the contract with the charter school, charge for access to services. Other districts don't charge for services, but provide access to those services. State statute is not prescriptive with regard to what approach is taken. 9:41:14 AM CHAIR STEVENS thought it was strange to have to put the wording in the bill. He asked if the Commissioner would like to comment on the vocational/technical component. COMMISSIONER HANLEY said the component applying to vocational/technical educational programs for secondary students does not get as much attention as the other two components. Students generate funds for vocational/technical programs, but often do not receive them in charter schools. Not all charter schools have those programs. CHAIR STEVENS voiced appreciation for the attempt to achieve equity and clarity in the bill. SENATOR GARDNER understood that transportation is a big issue for students who are interested in attending an alternative school, charter or otherwise. Without transportation funding, those schools are not open to all. She maintained that if transportation is provided to charter schools, it should also be provided for alternative schools. She pointed out that it would entail a cost to the district. 9:43:31 AM COMMISSIONER HANLEY drew attention to another component of the charter school in Section 6, on page 5, regarding the application. He said there are two components, one of which has been addressed; funding equity. The second component is found in lines 16 and 17 - the application for a charter school. This provision allows an academic policy committee to apply to become a charter school. If they are denied at the local level, currently, the process ends. COMMISSIONER HANLEY said on line 23 (b), it strengthens and brings transparency to the decision-making process: "The decision of the local school board, approving or denying the application for a charter school, must be in writing, and must include all relevant findings of fact and conclusions of law." He said the appeal process begins on page 6, line 12. The appeal goes to the commissioner who has three options. On line 17, one is to remand the appeal to the local school board for further review. Another is to approve the charter school application and forward the application to the state board with or without added conditions. The third is to uphold the decision denying the application. This process allows an extra set of eyes to review the application process. He stressed that the important part is at the beginning of the process; the decision needs to be based on fact and in writing. CHAIR STEVENS agreed that putting it in writing makes sense. He said, having served on a local school board, it is unrealistic that a school district would be forced to have a charter school. He said the only way to get beyond that is to have the State Board of Education in charge of the new charter school. He asked how the department could force a charter school on a district. 9:48:02 AM COMMISIONER HANLEY agreed. He opined that if a district denied an application based on fact and the conclusions of law, it would be very uncomfortable and awkward to approve it and force it on a school district. The idea behind this provision is to provide an opportunity for a review of the procedure. He noted that there have never been any denials of a charter school application; however, some charter schools were turned away before they applied. CHAIR STEVENS said the Commissioner's staff is not excited about having to manage more schools. SENATOR GARDNER asked if it was appropriate for a district to discourage a charter school proposal that is unrealistic. COMMISSION HANLEY said yes; there are many reasons to deny an application and the decision should remain at the local level. He said he is not suggesting that scrutiny at the local level is not a great idea. 9:51:07 AM CHAIR STEVENS moved on to the tax credit issue, beginning on page 11, Sections 21-31. COMMISSIONER HANLEY said two components were added to the list of tax credits. The first one is on page 11, line 23, (8), and related to tax credits for a scholarship for students pursuing dual credits, to defray the cost of tuition, registration, course, and textbook fees. The second is (9), beginning on line 26, for the construction, operation, or maintenance of a residential housing facility by a residential school. These two provisions are duplicated throughout the bill referencing different taxpayers. 9:53:10 AM SENATOR GARDNER asked about (8) on line 23, the scholarship program. She asked if it is open to all applicants or if they are limited. COMMISSIONER HANLEY said that provision involves a tax code. He did not know the restrictions. JOHANNA BALES, Deputy Director, Tax Division, Department of Revenue, Anchorage, Alaska, answered questions related to SB 139. She explained that any non-profit that has set up a scholarship program would qualify for the tax credit, but there are no parameters within the language, so the non-profit could have some restrictions on who could qualify for the scholarship. The scholarship does not have to be open to everyone. CHAIR STEVENS asked for clarification on the residential school credits and if they can be used for operations and maintenance. MS. BALES said the tax credit could be for operations, maintenance, and construction of an approved facility. CHAIR STEVENS asked how many residential schools there are. COMMISSIONER HANLEY said there are eight. CHAIR STEVENS noted the two provisions are found throughout the bill. 9:56:19 AM MS. BALES said the two new contribution types would be available against four different tax types administered by the division; corporate income tax, mining license tax, fisheries business tax, and fishery resource landing tax. CHAIR STEVENS summarized that non-profit organizations can offer scholarships for students pursuing dual credits and receive a tax credit. He asked if anyone is doing that now. MR. BALES said she did not know. CHAIR STEVENS asked Commissioner Hanley if he believes this provision to be functional. COMMISSIONER HANLEY did not know of any non-profits that offer scholarships, currently. However, the boarding stipend just barely covers expenses for the time students are in attendance. Almost all residential schools have partners that help provide support. He anticipated that several entities would receive tax credits due to this bill. 9:58:20 AM SENATOR GARDNER addressed the four kinds of tax credits. She gave a hypothetical example of a donation by a mining company and asked if the tax credit can be applied to their mining tax and their corporate income tax, yielding a double credit. MS. BALES said no. There is language in current statute that says an entity cannot use the same contribution amount to take a credit against multiple tax types. COMMISSIONER HANLEY summarized that the two components are relatively straightforward; one is equity and transparency for charter schools and the other is to incentivize more partnerships in education. CHAIR STEVENS held SB 139 in committee.