SENATE BILL NO. 36 "An Act relating to transportation of public school students; relating to school construction grants; relating to the public school foundation program and to local aid for education; and providing for an effective date." Co-chair Sharp convened the meeting and reviewed the expected schedule. He did note that SB 173, Charitable Gaming, would be held over until Thursday morning at 8:30 a.m. Co-chair Pearce would be chairing the afternoon meeting on Results-based Budgeting beginning at 4:30 p.m. At 6:00 p.m. Thursday evening will begin public testimony on SB 36, continuing for three hours, and will continue daily until everyone has been given an opportunity to testify, up through Saturday. He said Senator Phillips would introduce a new CS work draft and the drafter would go through it section by section for the benefit of committee members and the public. Then the bill will be set aside so the Department of Education can complete their runs on it as to how the bill will affect the school districts throughout the State and to do the fiscal notes. After public testimony is complete he said the committee would work on amendments and have further discussions which probably would be on Tuesday at 8:30 a.m. Senator Adams asked when the public could have their copy of the new drafted CS. Co-chair Sharp said it would be available as soon as the committee adopted it for work purposes, and further it would be available electronically. Co-chair Sharp said copies were being made for the public to follow along presently. Senator Torgerson asked about the time limit on public testimony or if it would be the regular three minutes. Co- chair Sharp said it was publicized for three minute testimony but he could go a little longer for school district testimony. Co-chair Sharp cautioned the audience to be more orderly so the committee could begin work on the bill. In further response to Senator Torgerson he said he would be somewhat lenient in the taking of public testimony but he wanted everyone to be able to testify and therefore would try to hold to the three minutes limit so it would be a dependable schedule. Senator Phillips, representing Senate District "L", introduced proposed CSSB 36, which is an accumulation of various bills. He noted one correction to the work draft on page 3, line 2, delete "three" and insert "four" so it would read "...four mills...". Senator Adams indicated this was a bad change. Co-chair Sharp further reiterated that there would be no teleconference testimony taken at this time. This would be "listen only". Senator Phillips continued and said that the Department of Education would come up with its own analysis and hopefully the numbers would be available to the committee and the public by Thursday morning. Then we can see the effects of the bill on the various fifty-three school districts around the State. Mike Ford is available to review the bill section by section Senator Phillips said they had tried to accomplish three main principles: simplicity, equity and accountability. They believe they reached those goals. First, funding was allocated per student rather than instructional unit value. Second, the size adjustment in the formula was based on individual schools instead of "funding" community. Third, the adjustment for geographical cost differences is based on the 1998 McDowell Study of the actual cost of operating schools, instead of household cost of living. Number four and five points are based on the equity equation. Fourth, requires local contribution from municipal districts at four mill value, or one hundred percent of the district's State support. He noted that currently the limit is thirty-five percent. Fifth, the required local contributions for the REAA's was set at the equivalent of four percent employment tax. This referred to those areas of the State that were not contributing locally would now contribute something towards the cost of education. Sixth, the Regional Educational Service Areas, or more commonly called REAA's were established using the boundary proposals of the model borough in the 1995 local boundary commission "model boroughs boundaries report". Seventh, category funding is set at twenty percent State funding plus funding for intensive needs. The last point he made was that funding for Statewide correspondence studies programs offered by the districts was set at point six five times the ADM, same as the State operated program. He emphasized the three basic principals that were being worked toward; simplicity, equity and accountability. It is believed that this bill achieves those goals and it is understood that there may also be some changes through the committee process. The bill is a starting point, however complicated; therefore making it also complicated for the Legislature to deal with it. It was a good faith attempt at rewriting the foundation formula, which he believed, along with others, was broken and needed to be fixed. Senator Adams gave the minority position regarding this bill which he only received this morning. He said one of the problems with the McDowell Study was that it was flawed. There were approximately ten disclaimers, making something wrong with the study, and in using that study the bill was considered flawed. This bill would pit rural areas against urban areas. The study suggested shifts of education resources from rural to urban. There the economic tax base and scales is good for that area. Basically if the study is looked at it relies on misinterpretation of the laws that are presently on the books. Also, there was the setting of financial targets regardless of education needs and the reality of education delivery system in Alaska. The particular study done by LB&A predetermines direction so the study would favour urban over rural Alaska. The public needs to look at the study and then submit a list of questions with regards to his statement just made and then they can be responded to, whether he is correct or not. He noted Senator Phillips referral to simplicity, equality and accountability. Basically it has been forgotten the oath of office that was taken. Article XII, section 8, reads that "The Legislature shall, by general law, establish and maintain a system of public schools open to all children of Alaska and may provide for other public education." The Legislature is summonsed to provide free public education. Looking at, in particular section 14.17.410 (2), money is taken away from a school district, which goes against the grain of the Constitution. That is not right. If it is done against a particular school district, which one is next? By the adoption of a committee substitute lawsuits are being encouraged against the Legislature and the State of Alaska. Simplicity, equality and accountability are not being reached in this bill. However, it is a start. Senator Adams continued, referring to the foundation task force that was set up, it was not said that money should be taken from one district and put into another. Rather, it was said there was inadequate funding available. Sufficient funds are available, for instance, from cigarette taxes. He continued his opposition this legislation but said he would be happy to work with the chairman in coming up with appropriate legislation. Co-chair Sharp thanked Senator Adams. Mike Ford, Attorney, Legal Services, Legislative Affairs Agency was invited to join the committee. He said he would give a brief overview of CSSB 36 (FIN) "F" and the provisions contained therein. Section 1: Purpose section Section 1: Rewrite of the foundation formula 14.17.300: Establishes public school account and provides the money can only be used for certain purposes, public schools, community schools programs or centralized correspondence study. 14.17.400: Provision that provides for funding for school districts and specifies that funding is the amount calculated under section 14.17.410. The section also provides for a pro rata reduction in State funding if the amount appropriated is insufficient to meet amounts authorized under this section. 14.17.410: Actual funding formula. It provides that a district is eligible for public school funding in an amount equal to the sum calculated under (b) and (c) of this section. Subsection (b) breaks down what actual public school funding consists of. It consists of a State share and local contribution and it provides for how we determine what those two parts are. The State share actually consists of State support less local contribution and ninety percent of Federal funds. Following through subsection (b)(1) it contains the elements necessary to calculate what each district will receive in State funding. Subsection (b)(2) is the local contribution from city and borough school districts, a four mill levy on taxable real and personal property. Subsection (b)(3) is a local contribution from REAA's and that is the equivalent of a four percent employment tax. Subsection (c) is the optional local contribution for city and boroughs. That is set at an equivalent of a two mill tax levy or twenty-three percent of the State share, whichever is greater. Subsection (d) describes the local contribution required of an REAA and what that consists of. That is an equivalent tax on services performed in REAA's. Subsection (e) provides that public school funding cannot be provided to cities and boroughs who don't make their local contribution. Subsection (f) provides similar provisions for REAA's. If they fail to make the local contribution then their State share is reduced by the amount they fail to contribute. 14.17.420: Funding provision for special needs and intensive services funding. He noted there was a blank on line twenty-five, page four, and that was because it had not been established what the number should be. (a)(1) is special needs funding and (a)(2) is intensive services funding. 14.17.430: Funding for correspondence study. The provision breaks down correspondence into three components: State centralized correspondence study program, Statewide correspondence study program and a district correspondence study program. It was all under ADM funding. 14.17.440: State funding for State boarding schools. 14.17.450: New school size factor. 14.17.460: District cost factors. This section also required the department to monitor the cost factors and to come back to the Legislature with proposed new cost factors beginning in January 2001. 14.17.470: (contains a missing element) It will be the base student allocation, formerly known as the instructional unit value. This will be a key element of the formula. 14.17.500: Contains provisions that are in existing law that should have been rewritten. They are substantiatively the same as existing provisions of law. 14.17.500: Concerns student count estimates when the data is required to be reported to the department. 14.17.505: Concerns fund balances limiting the accumulation of fiscal year end fund balances by school districts. 14.17.510: Provision which requires Community and Regional Affairs to assess values in city and borough districts. 14.17.520: Authority for the department in consultation with the Department of Labor to adopt regulations necessary to calculate, determine, collect or enforce the local contribution from REAA's. 14.17.530: Cap on administrative expenditures by school districts. The cap is $950/ADM multiplied by the district cost factor. It also provides a mechanism for waiver of that cap at the discretion of the commissioner or the board. 14.17.600: Establishes student counting periods. Those periods in which a district would count are actual attendance and would report it to the department for purposes of calculating how much State funding they are entitled to. 14.17.610: Established provisions for distribution of State funding. These two provisions are similar to existing law. 14.17.900: Provides the Chapter 14.17 is not a debt of the State. It requires each district to operate under a balanced budget and again provides for pro rata reduction if amounts are insufficiently appropriated. 14.17.910: Establishes restrictions concerning receipt and expenditure of district money; requiring each district to keep complete financial records, providing that the public school funding is for general operational purposes of the district. 14.17.920: Authority for the department to adopt regulations that are necessary to implement the chapter. 14.17.990: Definition section. Section 3: Technical amendment, as is sections 4, 5, 6 and 7. Section 8: Provision requiring the reorganization of REAA's into areas that are identified in the local boundary commission report, entitled: "Model Borough Boundaries". Actually, they are reorganized into educational service areas and an educational service area will constitute a new REAA. Section 9: Adds additional authority to an REAA school board and allows them by resolution to request organization into a municipality. Sections 10, 11, 12 and 13: Technical amendments. Section 14: Changes existing law to allow a school district to implement a ten-year teacher lay-off plan if State support decreases in a fiscal year by three percent or more or from one fiscal year to the next by three percent or more. Section 15: Technical amendment. Section 16: Amends existing law on when a district has to provide transportation for exceptional children to qualify that to transportation has to be provided to all children in the district. Section 17: Adds new language regarding special education service agency to allow a pro rata reduction in funding if amounts appropriated are insufficient. Sections 18, 19, 20, 21 and 22: Technical amendments. Section 23: Amends a provision that concerns child care facility grants. Because there is no longer instructional unit allotments the child care grant provision is now tied into the same percentage as funding under 14.17.460. Section 24: Repealers necessary to implement the bill. Section 25: Delayed repealer concerning reorganization of REAA's. Section 26: Transitional funding provision. It basically holds districts harmless for the upcoming FY year 1998. In 1999 it reduces the hold harmless to fifty percent; in the third year you're into the new system. Section 27: Deals with regulations providing that existing regulations are consistent and remain in effect. Other regulations are nulled. It also requires the Department of Education to define by regulation the term "school". And that term, of course, is essential to many of the elements of the formula. Section 28: Provides a two year transition period for the local contributions from REAA's. First year that it takes effect would be a one percent contribution. The second year would be a two percent and then the third transition year would go to the full percent. Section 29: Specifies when the first new proposed cost factors would be required to be submitted to the Legislature. Section 30: Transition section for the base student allocation. Those numbers are not available yet, but they will be anticipated to be a two year transition process through the full base student allocation. Section 31: Requires for purposes of 14.17.450, which is calculation of school funding elements, that a school smaller than ten ADM is calculated into the largest school in the district. Section 32: Provision that requires new REAA school board elections once the REAA's have been reorganized. Sections 33 and 34: Effective dates. Senator Adams asked Mr. Ford to go back to page three and explain (2) and (3) again. Basically, (2), the way it's read is not to exceed one hundred percent. He asked if this was correct. Mr. Ford responded that under paragraph two, lines one through six, if a city or borough school district did not make a contribution then they potentially are not going to get their support because of subsection (e), which says no support if contribution is not made. Under paragraph three, which is the REAA contribution, if they fail to make their contribution, then under subsection (f) the amount by which they fail to contribute is taken out of their State share. Senator Adams asked if the State share was equivalent to four percent employment tax on people in unorganized areas? Mr. Ford indicated that was correct. Senator Adams said they were not segregating but rather tax an area without the rest of the State? To discriminate? Mr. Ford said the bill provided for local contributions from all districts, cities and boroughs as well as REAA's. The contribution in an REAA is the equivalent of a four percent employment tax. Senator Adams asked if in one of his rural villages that isn't an organized borough and one makes twelve thousand dollars they would have to pay four percent of that money? Mr. Ford said that if it met the definition of compensation for services as is calculated is how one will be paying. Co-chair Sharp asked if there were any more questions for Mr. Ford. Senator Phillips MOVED CSSB 36 draft as a working document. Senator Adams objected. Senator Adams said he objected to this committee substitute because rural Alaska, including the North Slope Borough, already bears the impact of resource development of its oil, timber and fish. While most of the wealth flows from this area into the general fund and then into the urban areas, what really is happening is an attempt to reallocate funding or redistribute tax revenues from one community to another's school district. That is not the answer to this legislation. He said that robbing one school district to serve another is wrong. He asked what other school district would be next. Equity was mentioned in the presentation. Measuring this on a per capita basis is heavily discriminating against rural Alaska. Local rural areas and rural governments should be expected to pay for urban population group. Rural Alaska also has a high delivery of education and needs. Those that he represents in rural Alaska do not need to be taxed the four percent tax. Basically, adequate funding within the State coffers to take care of areas that have overcrowding and over enrollment, such as in the urban centers. Rural Alaska would like to help out, but one school district should not be pitted against another. This does not do what the majority of people want to do as far as simplicity, equality and accountability. He noted for the record that his objection was maintained. Co-chair Sharp asked the roll call be taken and the Secretary did so, showing a vote of 5 - 1 (Parnell, Phillips, Torgerson, Pearce, Sharp; yea) (Adams; nay) (Donley; absent) adopting CSSB 36 (FIN) "F" version as the working document before the committee. Co-chair Sharp said his intent was to set the bill aside until the committee had actual figures to work with to analyze to see the effect of the legislation. The runs would be made available upon request. Senator Phillips asked that the runs be made available to all LIO offices around the State as well. Co- chair Sharp concurred. Richard Cross, Deputy Commissioner, Department of Education was invited to join the committee. He said the runs would be made available via electronic transfer as soon as possible. He said they hoped to work into this evening and have runs available by Thursday. However, they needed some additional guidance from the committee because there were blanks in the bill. He referred to page four, line twenty- five there being a blank for the ADM multiplier. The base student allocation specified on page eight, line nine is blank. The transitional allocation on page twenty-one, lines twenty-two and twenty-three are also blank. If the values are to be determined and if it is the intent of the committee they must have some guidance of what the total amount of spending that is intended to be allocated. Otherwise they will show up Thursday with no numbers. Co-chair Sharp indicated that the totals would be gotten from Senator Phillips and Senator Wilken. Senator Phillips asked if the question was on the amount of funding for this year. Mr. Cross responded that if they were being asked to back in numbers that had been done before, however, they needed the amount of funding that is going to be provided to the formula in order to accomplish this. Also, he received the bill only twenty minutes ago and they may have some pretty significant questions about how the transition language is supposed to work. He asked if staff would be made available to answer these questions while reading this language so they would be sure of the intent as opposed to making up their own theory. Co-chair Sharp indicated that was corrected and asked Mr. Cross and his staff to work in conjunction with Senator Phillips and his staff to obtain the necessary information. Senator Phillips requested an at ease. Senator Adams said it was important that the total amount for education be made clear for this year. Senator Phillips indicated they would have an answer. Senator Adams further said there had been runs made to make the bill and those favoured the urban areas. Co-chair Sharp at approximately 9:30 a.m. said there would be approximately a two minute at-ease. He called the Finance Committee back to order at approximately 9:45 a.m. Richard Cross, Deputy Commissioner, Department of Education was again invited to join the committee. Senator Sharp indicated to Mr. Cross that they would like them to use the FY '99 adjusted numbers from the Governor's budget as a base and go from there. Mr. Cross reiterated his understanding. Senator Phillips advised the amount was $631,677,700. and that it would be used for now. Senator Adams said that amount just as a base did not include public transportation. Senator Phillips concurred. He said it also did not contain the single sites. Senator Phillips asked Mr. Cross if that was enough information to go by and Mr. Cross said he believed it was sufficient. Co-chair Sharp at this point SET ASIDE CSSB 36 (FIN) and said it would be taken up again at 6:30 p.m. on Thursday for public testimony. After a short pause on record Co-chair Sharp indicated the committee would take up SCR 19, Prototype School Design.