SB 139-EDUCATION: FUNDING/TAX CREDITS/PROGRAMS  8:00:55 AM Chair Stevens announced the consideration of SB 139. He noted a new committee substitute (CS), Version N. SENATOR DUNLEAVY moved to adopt the CS for SB 139, labeled 28- GS2716\N, as the working document. CHAIR STEVENS objected for discussion. 8:01:23 AM TIM LAMKIN, Staff, Senator Gary Stevens, Alaska State Legislature, Juneau, Alaska, presented information on SB 139, Version N, on behalf of the sponsor. He pointed out the changes from the prior version of the bill. The first change is in Section 5, page 5, lines 4 - 22, where the language from SB 82, sponsored by Senator Olson and passed by committee on April 5, is incorporated into the bill. The language would assist districts with discounted rates for internet services under the federal Universal Services Program. MR. LAMKIN explained that the next change is on page 6, in the context of charter school appeals. The words "to determine" were changed to "to consider" on line 9. In Section 13, on page 9, the provisions of SB 208 regarding the school construction debt reimbursement were added. He said SB 208 will be heard later in the meeting. He highlighted page 14, lines 19 and 20, where the words "are less than" should be replaced by "are less than or equal to". He recommended an amendment to that effect. He said another change is in Section 20, page 16, lines 7 - 12. This section is in regard to the Technical Vocational Education Program (TVEP) and the methodology by which employers and employees contribute to the unemployment insurance fund. It is important to consider the "size of the pie" in the process of changing the TVEP allocation structure. In this section the contribution rate is changed from .15 percent to .16 percent. Currently, the fund is increasing on its own due to the growth in the employment sector. The change would allow the addition of the two entities, Ketchikan and Sitka, listed on page 17, in order to provide better representation from the Southeast region. 8:05:24 AM CHAIR STEVENS asked what difference that change makes to the employee contribution rate. MR. LAMKIN related that it should increase the entire fund by approximately $700,000. CHAIR STEVENS pointed out that the increase to individual employees would be under $10. MR. LAMKIN said it would be $9.60 annually. He continued with a change in Section 21, page 16, line 15, where the sunset is changed to 2017 in order to give the department time to address performance measures and an audit. 8:06:56 AM MR. LAMKIN described changes in Sections 25 - 36, the tax credit sections, related to corporate donations. He referred to page 18, line 27, where the reference to intercollegiate sports tournament is struck from the bill because it is not considered an academic exercise. That change is consistent throughout the tax credit sections. He highlighted a change on page 19, lines 6 - 15, - an addition to tax credits where a nonprofit is giving scholarships for students to attend dual credit summer camp events, such as Rural Alaska Honors Institute (RAHI). He said an amendment to that effect was considered and adopted by the other body. He reviewed a change on page 19, lines 25 - 28, - an addition to tax credits for Alaska Federation of Native elders who might wish to start a nonprofit that would promote public service and leadership, an amendment proposed by the administration. 8:09:36 AM MR. LAMKIN turned to Section 37, page 30, line 8, the repeal of the exit exam. On page 30, line 29, there is reference to a legislative audit of TVEP. On page 31, lines 4 - 13, uncodified law related to school construction debt reimbursement, contains the aforementioned proposed wording change, "is less than or equal to." In Section 44, on line 16, the effective date is changed to 2014, instead of 2015, in order to facilitate developing TVEP performance measures more quickly. CHAIR STEVENS thanked Mr. Lamkin for his work on the bill. CHAIR STEVENS requested Mr. Scott address the change beginning in Section 5, page 5, line 5. 8:11:54 AM DAVID SCOTT, Staff, Senator Donny Olson, Alaska State Legislature, Juneau, Alaska, presented information on Section 5 of SB 139 on behalf of the sponsor. He explained that Section 5 sets a minimum floor for all schools of 10 megabytes of internet service. In doing so, the state would be leveraging four federal dollars for each state dollar spent. The intent is to allow rural school districts to make use of distance learning. Rural students could then take advantage of the Alaska Performance Scholarship due to more course offerings. CHAIR STEVENS asked if this provision is in another bill. MR. SCOTT said it is in SB 82. CHAIR STEVENS asked for the status of SB 82. MR. SCOTT said it is in the Senate Finance Committee. 8:14:03 AM SENATOR HUGGINS asked about the fiscal note. MR. SCOTT said the 10 percent escalator has been removed and would reduce the fiscal note. CHAIR STEVENS noted the bill is in Senate Finance. SENATOR HUGGINS voiced concern about the fiscal note. MR. SCOTT related that to bring all schools to the level of 10 megabytes would cost between $7 million and $8 million. CHAIR STEVENS presented Mr. Scott with the fiscal note. MR. SCOTT explained that the base rate the state would pay this year would be almost $14 million, with an additional cost of $7 million to bring all schools up to the 10 megabyte level, minus 10 percent. This year it would cost roughly $22 million. SENATOR DUNLEAVY asked if the increase is $22 million. MR. SCOTT said he would need to discuss it with the department. CHAIR STEVENS said the options are to leave it in the bill or remove it. 8:17:43 AM SENATOR HUGGINS said he is inclined to not support something that will not work financially. CHAIR STEVENS asked for a motion. SENATOR HUGGINS moved to strike Section 5 from SB 139. SENATOR DUNLEAVY said he agreed with Senator Huggins. CHAIR STEVENS asked if there were any objections. Seeing none, [Conceptual Amendment 1 was adopted.] SENATOR HUGGINS said he is not trying to carve up the bill. SENATOR DUNLEAVY noted that debt reimbursement for school construction was the other proposal by Senator Olson. CHAIR STEVENS asked Mr. Scott to comment. He inquired about the status of SB 208. 8:20:06 AM MR. SCOTT said SB 208 will be heard later in the Senate Education Committee. CHAIR STEVENS questioned how to deal with SB 208. MR. SCOTT addressed funding school construction. He said there are two ways to fund construction, with a grant from the state or through debt reimbursement. Those schools eligible for 20 percent or lower participation share in the grant program would be eligible for 80/20 debt reimbursement, rather than 70/30. A precedent has been set with the 90/10 reimbursement. There is a five-year side bar. CHAIR STEVENS asked about the fiscal note. MR. SCOTT said in the first year the fiscal note is for $128,910 from a retroactivity clause only one school district is eligible for. The following years have indeterminate costs. SENATOR HUGGINS recommended that the bill stand alone. SENATOR HUGGINS offered Conceptual Amendment [2] to remove Section 13 from SB 139. There being no objection, [Conceptual Amendment 2 was adopted.] 8:23:41 AM At ease 8:24:39 AM CHAIR STEVENS brought the meeting back to order. He turned to Section 7 on page 6 and asked Commissioner Hanley to comment. MICHAEL HANLEY, Commissioner, Department of Education and Early Development (DEED), Juneau, Alaska, presented information related to SB 139. He concurred with Mr. Lamkin's statement that simply changes the wording of the appeal that comes to the commissioner, on line 9, to "consider." He discussed Section 7 as it applies to the charter school application appeal. He said the purpose and the Governor's intent of this section is to recognize some of the challenges charter schools have of just "getting the ball rolling." It provides additional scrutiny and opportunities for a charter school to plead their case. SENATOR GARDNER asked, with the new language, if the commissioner or the board can overturn a school board's decision or concur with the findings of fact and law. COMMISSIONER HANLEY clarified that the commissioner would "review and then forward," and the State Board would have opportunity to do those three things. SENATOR GARDNER requested clarification if the district would have to administer a proposed charter school that they had denied. COMMISSIONER HANLEY said it appears that the seven individuals of the state board, not the commissioner, have the ability to approve a charter school that has been denied by the district. 8:29:02 AM CHAIR STEVENS noted that has never happened. COMMISSIONER HANLEY agreed. SENATOR HUGGINS called it an appeal process if there was a denial. He gave an example of parents getting together to form a school and now having an appeal process. He spoke in support of this provision. He assumed the appeal process is more of a facilitation procedure. SENATOR DUNLEAVY asked what the original intent of the Governor was. COMMISSIONER HANLEY said it was to allow another set of eyes and add integrity to the local process. SENATOR DUNLEAVY asked if this language changes that intent. COMMISISONER HANLEY said it is an added opportunity for parents to be heard. He did not anticipate a lot of appeals. He concluded that the process brings integrity. CHAIR STEVENS noted it brings a conclusion to the process. CHAIR STEVENS addressed Section 20, the TVEP provision beginning on page 16. 8:33:55 AM GRAY MITCHELL, Assistant Commissioner, Department of Labor and Workforce Development (DOLWD), Anchorage, Alaska, presented information on Section 20 of SB 139. He said the changes add participants to the TVEP program and provide a way to fund them without significantly changing the allocations that exist for current TVEP recipients. He noted there would be a fiscal impact to DOLWD from Section 20 associated with the .01 percent increase to the TVEP set-aside, from .15 percent to .16 percent. He pointed out that a $9.60 per employee contribution increase is not accurate. The impact on the employee tax rate is zero; the impact on the employer tax rate would be approximately $2.40 per employee. An annual tax increase for an employer with four employees would be approximately $9.66 per year. As the number of employees is increased, the amount per employee is decreased. CHAIR STEVENS summarized the previous information. He noted that workforce development is an important issue and it has a cost. 8:37:46 AM CHAIR STEVENS pointed out that an audit would be required. He turned to page 18, line 27, - tax credits. He asked if there was any discussion of the removal of the sporting events tax credit. Hearing none, he addressed the dual credit issue on page 19. He requested comments from the commissioner. COMMISSIONER HANLEY addressed line 6, page 19, and said that, previously, one of the tax credits was to defray the costs of dual credit. The Governor's intent in SB 139 is to broaden that provision to allow on-campus room and board for post-secondary institutions and transportation costs to and from residential schools. Another component would allow students to access programs such as Rural Alaska Honors Institute (RAHI) out of Fairbanks and Alaska Native Science and Engineering Program (ANSEP) operated out of the university, for summer institutes. This section allows for corporations to receive tax credits when paying for the abovementioned costs. CHAIR STEVENS requested information about page 19, line 25, the AFN elders program. COMMSSIONER HANELY explained that it is another opportunity for a corporation to receive a tax credit for promoting educational opportunities for leadership. He noted an institution called the Ted Stevens Organization which allows legacy materials to be used for educational and leadership purposes - it is itemized separately. 8:41:23 AM CHAIR STEVENS turned to the exit exam on page 30. COMMISSIONER HANLEY related that the ultimate goal is to remove the exit exam, something that is no longer relevant. He said he would rather see transition language in the bill, but he called it the lesser of the evils as to how it gets to having the exit exam removed. The Governor's bill required WorkKeys or the ACT/SAT and that component has been removed in Version N. He noted that WorkKeys will still be required in 11th grade. 8:43:26 AM SENATOR GARDNER pointed out that for all tax credits, public schools have public disclosure requirements. She asked if private entities have to do the same and whether the state knows those costs. She wondered if the state knows total costs for a student to attend a program if it is paying only a part of the costs. COMMISSIONER HANLEY said the state does know the operating costs of public schools, including private donations, but not necessarily who the private donors are. CHAIR STEVENS suggested hearing from Ms. Bales. SENATOR GARDNER noted one of the values of Alaskans is accountability and public disclosure of money spent in public schools. She inquired if tax credits from corporations or other donors are public information. JOHANNA BALES, Deputy Director, Tax Division, Department of Revenue, Anchorage, Alaska, answered questions related to SB 139. She explained that the department provides aggregate information of all tax credits, but does not identify the name of the tax payer or the recipient. The report shows the total aggregate received by the university, colleges, vocational technical programs, and other small programs. There is a provision under the education tax credit law in current statute that states that each public college and university has to report in their annual operating budget the contributions they received through the education tax credit and how they were used. She offered to provide that information. 8:47:41 AM SENATOR GARDNER inquired about data showing that residential schools are performing better than other public schools that serve students through boarding home arrangements or the use of existing facilities. She asked if there a cost/benefit analysis that shows it is a better, less costly option. She requested that information. She spoke in favor of residential schools, but wished to see their costs. COMMISSIONER HANLEY offered to provide that information. He suggested comparing boarding schools to schools where students have come from. He agreed that there is an added cost for boarding students, but also that there is added value for students. 8:49:45 AM CHAIR STEVENS closed public testimony. He removed his objection to adopting Version N. SENATOR GARDNER said she has a conceptual amendment about a situation where a local school board has denied a charter school application. She said she likes that the board must put their response in writing and that the commissioner could agree that the findings of fact are a valid reflection of the application, and she has no objection to the referral to the state board of education. However, she maintained it is wrong to leave open the possibility that the board could override a school district's decision to reject an application, forcing the school district to run the charter school. She said it creates conflict. She noted it has never happened. She offered Conceptual Amendment [3] that when the process goes through and reaches the state board of education, the board can disagree with the findings of fact and law and send the application back to the district, but they cannot require the district to accept the charter school. SENATOR GARDNER reiterated Conceptual Amendment [3] saying the most that the state board of education can do is dispute the findings of fact and law and tell the school board to go back to the drawing board. 8:52:34 AM CHAIR STEVENS agreed there is a strong belief in local control and the local school board should have a say as to what happens in their district. He suggested that the denied charter school could come under the jurisdiction of the state board of education. SENATOR HUGGINS pointed out that the state board has the authority to disapprove of a district's decision to accept a charter school application. He maintained that it is not an even playing field. CHAIR STEVENS agreed it is a problem. He asked the commissioner for his opinion. 8:54:58 AM COMMISSIONER HANLEY addressed the issue. He agreed it would be an untenable situation. He summarized that the state board can deny or approve of a local approval. The public process of putting all cards on the table would require the state board to consider the findings of fact and law. He could not imagine a denial under that scenario. SENATOR HUGGINS said some school districts put a conceptual cap on charter schools. He maintained that the intent of charter school laws is for parents to be empowered to start a school. He recalled that in the Mat-Su there was a conceptual cap on charter schools. The bill says it is not in school districts' authority to say that. 8:57:30 AM SENATOR GARDNER agreed that there was suspicion originally surrounding charter schools and now they have proved themselves and are beloved by families that support them. However, there are some financial risks, and she said she has several proposals, as does SB 139, to ameliorate some of them. She emphasized that if a district, on findings of fact and law, has turned down a charter school application, there is no dispute of the findings, and the state school board wants it to go forward, the school board should run it. SENATOR STEDMAN thought the next committee of referral could deal with this issue. CHAIR STEVENS pointed out that the community elects the school board and can vote it out if they don't agree with its decisions. He requested that Senator Gardner clarify the conceptual amendment. SENATOR GARDNER reiterated the conceptual amendment's intent; if the state board of education approves a charter school application over the objections of the school board, which has presented undisputed findings of fact and law, the state board of education should run the charter school the same way it runs Mt. Edgecumbe. CHAIR STEVENS repeated the amendment. SENATOR GARDNER added "assuming there was no dispute about the findings of fact and law." 9:00:38 AM SENATOR HUGGINS objected. He said it is a radical thing and creates a new structure. He did not think Mt. Edgecumbe could be replicated around the state. He agreed the issue could be tightened up. CHAIR STEVENS said he was concerned, as a former school board member, about having another school district within a school district. A roll call vote was taken. Senator Gardner voted in favor of Conceptual Amendment 1 and Senators Stedman, Huggins, Dunleavy, and Chair Stevens voted against it. Therefore, Conceptual Amendment [3] failed by a 1:4 vote. 9:02:21 AM SENATOR GARDNER moved to adopt Conceptual Amendment [4]: "The board of education cannot approve a charter school that has been denied by a local district, unless they find a flaw in the findings of fact and law." SENATOR HUGGINS encouraged a positive statement. SENATOR GARDNER appreciated the suggestion. SENATOR HUGGINS encouraged waiting for the Senate Finance Committee hearing to propose the amendment. SENATOR GARDNER pointed out that the Education Committee is the education policy committee and the topic is an education policy; this is the appropriate place to deal with the issue. She withdrew Conceptual Amendment [4] and offered Conceptual Amendment [5]: "If the board of education finds flaws with the finding of fact or law, they can approve the charter school." SENATOR HUGGINS objected. 9:05:25 AM A roll call vote was taken. Senator Gardner voted in favor of Conceptual Amendment [5] and Senators Stedman, Huggins, Dunleavy, and Chair Stevens voted against it. Therefore, Conceptual Amendment [5] failed by a 1:4 vote. SENATOR GARDNER moved to adopt Conceptual Amendment [6], drafted to Version U, regarding the BSA. She said the amendment increases the BSA by $404. This number was generated by legislative research as a response as to what it would take to bring school districts "whole" from the years they have been flat funded. SENATOR STEDMAN suggested that the Finance Committee deal with this issue. SENATOR DUNLEAVY asked about the fiscal note. SENATOR GARDNER said she would look it up. SENATOR HUGGINS objected. 9:07:32 AM A roll call vote was taken. Senator Gardner voted in favor of Conceptual Amendment [6] and Senators Stedman, Huggins, Dunleavy, and Chair Stevens voted against it. Therefore, Conceptual Amendment [6] failed by a 1:4 vote. SENATOR DUNLEAVY moved to report the CS for SB 139, as amended, from committee with individual recommendations and attached fiscal notes. SENATOR GARDNER objected for discussion purposes. She said the bill is missing quality, optional preschool programs and efforts to support highly effective teachers. She opined that there are three stools that provide great outcomes for kids; involved parents, high quality teachers, and a high quality preschool program. She withdrew her objection and stated support for the bill. 9:09:54 AM There being no further objection, CSSB 139(EDC) was reported from the Senate Education Standing Committee.