SENATE BILL NO. 70 "An Act relating to the public school foundation program; and providing for an effective date." Senator Taylor was asked to join the committee. He acknowledged the help and assistance he received by Dr. Nat Cole, for his help in writing the last revision into the foundation formula. His expertise was invaluable in this effort. He also thanked Linda Snow at the Legislative Finance Division for the excellent job she did and the hard work administered, in developing the earlier drafts and spread sheets needed to explain this proposal. He expressed the appreciation and complete cooperation of Duane Guiley, Director, School Finance, and especially his staff member, Eddy Jeans. He testified that the proposal revises the foundation funding formula in an attempt to create a more equitable plan based on a community's ability to pay. Those school districts with a tax base are asked to come to the table on an equal basis. The plan requires a local contribution of the equivalent of a 5 mill tax levy. Where such a levy would generate more than the school district's basic need, the excess is recaptured to be distributed in the form of supplemental equalization aid around the state. Our regional education attendance areas which have no tax base, to speak of, would be required to put up 100% of any eligible federal impact aid, as their local contribution in lieu of taxes. The key to this proposal is the addition to the foundation formula of a supplemental equalization aid provision. The plan requires school districts to fund additional contributions, using the formula based on 2.5 mills and calculated on the district's average daily pupil membership, and the property evaluations of all school districts in the state. In return for the local contribution, the state would provide matching money based on a calculation also using average daily membership and property values. Communities that already make a local contribution, equal to that required by this plan, will see an increase in state aid from what we are calling the power equalizer. Those communities which would be required to increase their local effort, would be rewarded with additional matching dollars from the supplemental equalization plan. By way of example, Juneau's FY-96 local contribution is budgeted at $12.8 million. That is $12.8 million more than the local contribution required under this proposal. Juneau would see an increase in state funding of $1.3 million under this plan. Anchorage's estimated local contribution for FY-96 is $74.6 million under the current law. This plan before the committee would require a local contribution of just under $79 million. That is a $4 million increase. However, that increased local contribution would generate an additional $10 million in supplemental state aid. The spreadsheets are based on the latest property evaluation numbers available to the Dept of Education. Spreadsheets use the current $61.0 unit value. The comparisons are based on estimates for FY-96 under the existing law and under this plan. The bottom line is that the contribution of state and local resources available to education under this plan would exceed that available under current law by $27 million. By requiring the 5 mill equivalency and 100% of eligible federal match, as a local contribution, combined with other elements of SB 70, this plan would actually reduce state spending by more than $35 million, while increasing the number of dollars available to education statewide. Senator Phillips MOVED to adopt CSSB 70, version "O" dated 4/19/95. Senator Rieger asked to make a motion to amend the motion that was before the committee. There was debate as to the amendment. OBJECTION was removed and the CS working draft "O" was ADOPTED. Senator Taylor noted a technical change on page 4 and 14, replacing the word, "percentage" to "factor". Co-chair Halford asked where the funds are coming from? Senator Taylor explained that the spreadsheets reveal the funds coming from two districts: North Slope Borough and Valdez. Both of which have been blessed with a tax base that is extraordinary compared to any other community in the state. The amendment is saying that those communities should pay the same level of taxation that each of the other communities in the state are contributing towards education. Senator Taylor reflected that presently there are communities that contribute less to the school districts than others. When averaging daily membership (total number of children attending school) and dividing that number into the tax base of each community, the results show that Anchorage is much lower than Juneau, Ketchikan and several other communities, that have a greater level of community tax base. When those communities say they are paying high taxes, they are right. Joe McCormick, Executive Director for the Commission on Postsecondary Education made reference to the spreadsheet fax dated 4/20/95. The spreadsheets show the actual comparison of what would occur under this proposal. It covers every district. The first two pages on the right hand column labeled "E"(existing law -combined state and local resources) and on page 3 and 4, it answers: supplemental equalization aid; basic foundation aid based on a $61.0 unit; and the combination thereof; what the 5 mill requirement would generate from each community; the local share that would be required to obtain supplemental equalization aid; the capture column,"K", and what would be required locally, over and above what is currently being contributed for communities to meet the requirement of the bill. The figures shown indicate those communities not currently contributing what would be contributed under this bill. Communities zeroed out are either REAA's or communities that already contribute more than required. Pages 5 and 6, indicate the additional local revenue required to meet 5 mills and local share. He indicated that there were not many communities in this category that would have to put in more money, but in each case, that increased local contribution generates additional supplemental aid with the exception of the two communities of the North Slope Borough and Valdez. Co-chair Halford asked how the recapture works. Senator Taylor responded that the when the money has been transferred into the state fund, through the power equalizer formula, the state fund then redistributes the money. That is where those monies come from that are matched. For example, when Anchorage puts forth $4 million of additional local funds, they will receive $10 million. Mr. McCormick stated that there is a fiscal analysis of the impact of this legislation in the form of a spreadsheet. He stated that it refers to draft "M" on the spreadsheet, but it actually refers to draft "O". Co-chair Halford inquired to the amount the state currently contributes to education in the communities that will be seeing a reduction in state aid, such as Valdez and the North Slope Borough? Senator Taylor responded that the North Slope Borough receives $9 million for basic education. North Slope contributes 35% and the state contributes $3 million over that for a total of $12 million. North Slope spends over this amount, and he indicated that it was in the $20 million range. With this plan, they would not be receiving as much from the state. Mr. McCormick noted that there is a provision requiring a contribution of 100% of eligible federal impact aid (currently it is 90%) as against the basic cost of education. The reason for the 90% used in the past, was to provide an incentive for the district doing the paperwork. Co-chair Halford inquired as to the mechanism drawing the money back into the formula from communities who have the huge oil investments? Mr. McCormick responded that Section 1 of the bill states that the public school foundation account is established. It adds, "municipal contributions made under AS 14.17.025(i)", and on page 2 of the bill, it gives the formula for the 5 mill equivalency. That is the mechanism which requires the municipality to actually send the check. There are alternatives to that requirement. The state could allow a year for transition and forgive the requirement, but that the state will not fund them, they would be endorsing their educational system. That alone would be dropped back to a $60.0 funding level. This will still generate income over and above what is currently being spent on education in all the other tax paying districts in the state because the amount has been saved that was not sent out to the districts who can afford it. The funds then would be redistributed throughout the state. Senator Taylor did express that it is a circle against state revenue. Senator Taylor noted that the State of California was faced with a similar problem several years back. They were faced with a differential between rich and poor tax districts. This led to the Sonoma Case. In Alaska, we had a similar case, whereby Mat-Su Borough sued the state 3 years ago. Every time funding is short, there are disparities within the state. He has concerns that the state will lock into two years of flat funding, which he says is happening right now. If one of the districts brings forth a suit like the Sonoma suit, and we are ordered by the courts to go back and adjust the formula, in an even more disproportionate amount than it is now, it could be disastrous. By adopting this formula, it should prevent a situation like the Sonoma Case from happening. Senator Phillips MOVED to adopt the change of "percentage" to factor on page 4, lines 14 and 16, and on page 14. No objection being heard the amendment was ADOPTED into the working draft. ADJOURNED The meeting was adjourned at approximately 11:00 a.m.