SENATE BILL NO. 290 "An Act relating to state funding for transportation of public school students; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. Senator Wilken spoke to the bill, which was sponsored by the Senate Finance Committee. He spoke to his surprise at the beginning of this session when a supplemental budget request was submitted requesting funding for additional $7.4 million for pupil transportation. He shared that in the past, the state has provided the additional funds to cover between 90 to 100 percent of the transportation costs but that the large amount requested this year was unexpected. Senator Wilken stated that he wanted money to go to the classroom rather than the bussing program. Senator Wilken admonished that school districts have no vested interest in the pupil transportation contracts although they were the parties that negotiated the contracts with the providers. He stated that this legislation would involve the school districts in the negotiations since they would now be required to cover 50 percent of the transportation costs. Senator Wilken spoke to the four primary reasons why the cost of the contracts had such a dramatic increase. He noted that the minimum wage in Alaska has increased by one dollar since the previous contract negotiations. He shared that statue requires the minimum wage to be doubled for pupil transportation employees. Therefore, a 16 percent increase was automatically made in the new contracts. Senator Wilken also attributed contract alignment as another relevant issue, saying that by combing the routes of more than one school district would attract more bidders. He noted that more than one company has bid for these contracts in the past. He supported the competition saying it promotes a better product at a lower price. Because of this, he said the Department of Education and Early Development has been working to align the contracts and has been successful. Senator Wilken then talked about contract specification changes, saying that while realignments might be the right thing to do, the cost to the state has to be considered as well. Senator Wilken concluded that the fourth factor was changes allowed by the Board of Education that increased the costs for pupil transportation with no regard to what it costs the school districts, who do not argue against these changes because the state pays the bill. Senator Wilken stated that these factors drove this legislation to involve the school districts and "put them at risk with their taxpayers' money" just as the state is currently impacted. Senator Wilken explained that this bill recognizes the contract amounts in FY 01, as finalized and approved for funding by the legislature, as the "funding floor" and that future increases would be measured from this base. Funding for contracts negotiated after FY 01 would be split fifty- fifty between the state and the school districts. Senator Adams expressed that he wanted FY 00 to be the base year and have the funding ratio change reflected in the FY 01 operating budget. He stressed the need for the legislature to have accountability between the districts and the contractors. He strongly supported the concept of the bill. He spoke against the state paying 100 percent of the cost. He compared the average cost per route per year to the cost per contract and to the cost per student per year. Senator Wilken said the intent was to affect the contracts negotiated after the ones that go into effect in FY 01. He asserted that make the legislation retroactive to FY 00 contracts would "muddy the waters" and the legislation would be more difficult. He added that the issue of district versus contract would be addressed with this legislation because the school district would have to decide whether it wants to share the cost or negotiate a better deal with the carrier or balance the cost versus the services. Senator Green understood that those contracts currently in place in addition to those contracts to be renegotiated this year are the baseline for future computations. Senator Wilken affirmed. Co-Chair Torgerson clarified that it actually depends on how much the legislature appropriates. If the legislature decides not to fund the $5 million increase, he stated that the FY 01 base would be only the amount the legislature did approve. He noted that if the legislature appropriated no increase, the baseline would be the FY 00 amount. Senator Green was concerned about those districts that were not scheduled to renegotiate new contracts this year. She thought it was unfair and that those districts would be penalized since their baseline would be lower. She wanted those districts that did not renegotiate this year but would have significant increases to be allowed consideration. Senator Wilken noted that all the major districts would have negotiated contracts this year and that except for Kenai, all contracts would start in FY 01. He stated that no further negotiations would take place before the bill was enacted. Senator Adams wanted the department to address the effective date. EDDY JEANS, Manager, School Finance and Facilities Section, Education Support Services, Department of Education and Early Development, stressed that the contracts would not indicate the reimbursement rate. He explained that the level of funding the legislature actually appropriates this year is the amount that would dictate the baseline. Co-Chair Torgerson repeated Senator Green's question of how many districts had already negotiated their contracts and how many districts were left. Mr. Jeans answered that the districts in alignment to FY 01 were Anchorage, Mat-Su and Fairbanks with a total of approximately 440 buses. The rest, he said are small contracts of two or three busses per district and were staggered as to when their contracts were due for renegotiations. Senator Green asked if there was a built in inequity by accepting those contracts that had large increases and therefore allowing those districts a higher base. She thought the districts that had not yet renegotiated their contracts would be locked in at a previous, lower base. Mr. Jeans repeated that the base year would reflect the amount this legislature appropriates. He noted that every contract includes cost of living (COLA) increases, including the existing contracts. He stressed that school districts would "feel a pinch" in the coming year because they would be required to fund part of the COLA. Senator Green asked if that pinch would be felt equitably across the state in the major school districts. Mr. Jeans was unsure if he could answer the question. Senator Green asserted that the question must be answered before the legislation could proceed. She expressed her concerns about different bases for districts. Senator Wilken referred to a spreadsheet titled, History of Contract Rate Increases, dated February 17, 2000 supplied by the Department of Education and Early Development that contains renewal year information. [Copy on file.] Mr. Jeans explained the spreadsheet indicates that the Anchorage School District previously had two contracts, one for 90 buses and another for 77 buses that came due for renegotiations a year apart. He stated that the department has since aligned those contracts and that they would both be up for bid in the year 2001. He added that the same was true for the school districts in Mat-Su and Fairbanks and that the three districts were working together to issue a joint Request for Proposal (RFP). Mr. Jeans then addressed that effective date saying that it could be in 2000 and would not impact the intent of the bill. Senator Adams commented that in looking at the district operated routes versus contracted routes, he discovered that the contracted routes were significantly less expensive than the routes operated by the districts. He asked if more of the routes could be contracted. Mr. Jeans replied that Laidlaw is the major bussing contractor in the state and that it held the contracts for Fairbanks, Anchorage and Mat-Su. He shared that the information Senator Adams referred to was the Anchorage School District, which runs a duel system. Co-Chair Torgerson noted the worksheet also shows rate increases and the percentages of those increases. He asked if the increases were spread out over the length of the contract. Mr. Jeans replied that those increases go into affect right away and that there would be a 48 percent increase in the Anchorage contracts in the first year. Co-Chair Torgerson asked if this increase includes the COLA clauses. Mr. Jeans responded that the COLAs are built into contracts for the out-years and so the 48 percent does not include the COLA. Co-Chair Torgerson asked the range of COLAs in the newly negotiated contracts and if there is a ceiling on what amount the COLA could be. Mr. Jeans answered that most contracts are tied directly to the Anchorage CPI for COLA adjustments. Co-Chair Torgerson clarified that the FY 00 supplemental appropriation recently approved by the Committee contained a 48.9 percent increase for the Anchorage contracts. He asked if the next year would bring an increase to this amount because of the COLA and that the total increase over FY 99 could be 52 percent. Mr. Jeans affirmed. Senator Green asked who requires the inclusion of the COLA language in the contracts and if it was the legislature, the board of education, the department or another entity. Tape: SFC - 00 #65, Side B 9:57 AM Mr. Jeans responded that COLA increases have been included in the contracts as long as he has worked for the department and that "it's something that's simply thrown into the contracts." Senator Green asked if that meant the COLA adjustments do not have to be included in the contracts. Mr. Jeans explained that if COLA adjustments were not included in the contracts, the result would be that the contracts would increase for the projected amounts anyway. Co-Chair Torgerson stressed this issues dealt with the "heart of the bill," that the legislature's role in the process is to appropriate the funding to cover the cost of the contracts. He asserted that he thought this year's increase was inappropriate considering the state's budget situation. He stated that the department should not have authorized the large increases. Co-Chair Parnell then focused on the Anchorage School District's contracts and noted that page two of the spreadsheet showed the 48.9 percent increase only reflects the increases on the contracted routes. He asked if the district also has cost increases on the district operated routes and how they are being addressed. Mr. Jeans deferred to the first page of the spreadsheet that showed the total increase including the actual operating costs to the district for the district operated routes. He showed where the data for the two routes was broken down. Co-Chair Torgerson asked if any other school districts have district-owned busses and if that information was reflected in the spreadsheet. Mr. Jeans replied that some other districts did own their own busses but were not reflected in the spreadsheet at this time. Senator Phillips relayed that the previous fall the state Board of Education increased the state's reimbursement from 90 to 100 percent of pupil transportation costs through regulations. He asked what was the rationale behind that change and how much that increased the state budget. Mr. Jeans replied that the state board did increase the reimbursement rate from 90 to 100 percent. He noted that SB 36, passed into law in 1998, stipulated that district- operated routes would be reimbursed at least 90 percent and that the current reimbursement reflected the maximum allowed. He stated that public comments submitted to the department in response to the new regulations argued that if reimbursement for the district-operated routes were to increase to 100 percent, the contracted routes should also be increased to match. He said that was the board's rationale for the increase. Senator Phillips asked how much the increase cost the state. Mr. Jeans answered that 3.9 percent increase was reflected in the spreadsheet and totaled approximately $210,000. Senator Leman commented that the increase was closer to ten-percent. Senator Leman then referred to the impact of the minimum wage in influencing this legislation. He commented that he did not approve of the statutory requirement stating that drivers are to be paid at least twice the minimum wage. He shared that the reason for this statute was to attract more drivers and that the argument supporting that bill said there would be little fiscal impact on the state since drivers were already paid above that. He asked if drivers were currently paid more than twice the minimum wage. Mr. Jeans said contracts show the drivers are paid just above that amount and explained that the statute allows that contracts don't have to be renegotiated each time the minimum wage was increased. Instead, he said, the wages remain the same until the contracts expire and are renegotiated. Senator Leman lamented, "we bring some of this on ourselves." He suggested repealing the bus drivers' minimum wage statute citing complaints about unfunded mandates. Co-Chair Torgerson noted that the Committee would not pass this bill out today so it was open to amendments. Senator Adams asked how many contracts in the state had a CPI attached and what would happen if a provision were added in this bill that prohibited CPI from any contracts. Mr. Jeans said if such a provision were in statute, he believed the bidders would simply include the cost elsewhere to cover the out-year COLA increases. Senator Adams then asked if the price of the contracts reached a certain point if the witness thought the state should operate pupil transportation itself. Mr. Jeans did not believe the department wanted to operate busses in the state. Senator Wilken referred to Senator Phillips's earlier question about the cost of contracted routes versus district-operated routes saying his calculations of the cost increase for district-operated routes was $470,000. Senator Green commented that the legislation was coming from the desire to avoid uncontrolled costs. However, she stressed there are some districts that will see growth due to increased student population and those districts should not be penalized. For those districts with declining student populations, she believed there should be a cap on additional costs due to renegotiated contracts. Co-Chair Torgerson asked if Senator Green's view was that the contracts renegotiated this year should have been for less. Senator Green affirmed. Co-Chair Torgerson stated that he did not disagree with that sentiment and noted Senator Green had submitted an amendment to address the issue. Senator Leman suggested that it would be more appropriate to calculate adjustments on student miles rather than enrollment. He realized that it could involve a complicated formula but stressed that was the fairest method. Senator Green pointed out that the State of Alaska is not required to provide student transportation. With that in mind, she hoped to reach a point where the state could make equitable payments to assist the school districts. LARRY WIGET, Executive Director, Public Affairs, Anchorage School District, began his testimony. AT EASE 10:11 AM / 10:17 AM [Related to power outage.] Mr. Wiget proceeded, stressing that garbage truck drivers probably make more money than school bus drivers do. He thanked the Committee for the supplemental appropriation to cover the costs for the FY 00 pupil transportation. STEVE KALMES, Director of Transportation, Anchorage School District, spoke to the factors that resulted in the increased costs of the contracts. He listed the new requirements for background checks and drug and alcohol testing for drivers, increased safety regulations and chiefly, a lack of competition. He related that when the contract when out for bid, the district received only one proposal. Mr. Kalmes assured the Committee that the district was making efforts to try to control costs. One example he gave was that the district is running fewer buses with more students than in did 1986. Mr. Kalmes spoke of the district's collaboration with the school districts in Fairbanks and Mat-Su to establish a baseline for service. Mr. Kalmes stressed that one of the difficulties in this legislation is that different districts provide different levels of service. He said that those districts currently providing a lower level of service would be impacted harder than those providing a higher level of service that could then be reduced. Mr. Kalmes referred to earlier discussions regarding the COLA increases. He also believed that if it were eliminated, there would be significantly higher up-front costs on a five-year contract. He addressed the recent jump in fuel prices, warning that if the contracts could not contain an allowable increase for fuel prices, the contractors would bid on the high end of predicted future fuel prices. He thought that the district has been better able to control costs because it is allowed to include COLA adjustments in the contracts. He did not think shorter contracts would be the answer either because of the lack of competition. He said that it would not be feasible for a potential new contractor to establish itself if it was only guaranteed the contract for a short period of time. Mr. Kalmes stressed that there are incentives for cost control in Anchorage, because the pupil transportation funds compete directly for classroom dollars. He shared that the district has an upper limit of its budget due to a tax cap. Mr. Kalmes next addressed the minimum wage issue, which was $11.30 per hour for school bus drivers. However, he lamented, the beginning wage for a transit driver in Anchorage was $15.02 per hour and the beginning wage for a trash truck driver was $19.93 per hour. After 14 years of services, he added, school bus drivers only earn $15.75 per hour and that school bus drivers make less money today than they did in 1986. He told the Committee that the contractor in the district has had to hire over 100 drivers in the past year, which reflects an over 50 percent turnover. He stressed that the school bus drivers are not overpaid, are not competing for these positions and that it is difficult to maintain a quality workforce. Mr. Kalmes returned to his comments on setting a baseline and the impact it would have on districts based on the level of service provided. He suggested establishing criteria of acceptable services and allowing the districts to pay for any additional services it chooses to provide. Mr. Kalmes asserted that competition was the biggest issue and that the state no longer had multiple contractors bidding on services as it did in the 1970s and 1980s. He explained that Laidlaw was the biggest contractor in the nation and operated in Canada as well and that a British firm recently purchased the next two largest contractors. He stated that the hope was that by the districts combining to offer a single large contract, another contractor would try to enter the market. He shared that the last time the contracts were renegotiated, the district gave an option of a two-year or a seven-year contract. This was unsuccessful, he said but that the district was continuing to try to attract an Outside contractor. Senator Phillips noted that the spreadsheet indicates about one-third of the routes were for special needs transportation. He wanted to know the cost of special needs pupil transportation versus that for other students. Mr. Kalmes told of a study the district did in recent years that found the cost for special needs students was approximately 14 times the cost of regular students. Senator Phillips requested the exact figures. Senator Phillips then referred to the 176 contracted routes versus 84 district-operated routes and asked for an explanation of why the district-operated routes cost $905 and the contracted routes only cost $637. He noted that the contractor has twice as many miles to cover. Mr. Kalmes responded that the district was broken into service areas and the difference was what services were included in that cost. He stated that the contracted rate only includes the cost of the daily rate for the busses for contracted services. For the district-operated routes, he continued all the related costs were figured into the rate, which included all district transportation employees. He stated that while his entire salary was figured into the district-operated routes, half of his time was spent dealing with contracted services. He added that the routing department also was included in the district-operated routes and that when that department was added in-house, the number of total routes was reduced. He also said safety training staff, crossing guards and other salaries were included in the district-operated routes. Mr. Kalmes also pointed out the significant increases to district costs in 1999 reflected the purchase of 30 new busses. He said in the future, these large purchases would be reduced because the department was implementing a replacement schedule control the cost fluctuations. Senator Phillips commented that the legislature was trying to find a "common denominator" and used various measurements to determine that. He asked the witness to identify which measurement he would chose to provide equity and quality services. Mr. Kalmes responded that regarding the Anchorage School District, the salaries of the district employees whose duties are related to contracted services should be included in the contracted costs rather than the district's costs. He stated that when using this method, the total costs were in line with the actual operating costs. Senator Phillips if legislation passes, what would the witness use to determine a common denominator. Mr. Kalmes statewide basis, calculating cost per student mile it would be equitable because it costs more to transport students in Barrow than in Anchorage. He suggested setting certain standards to identify the costs that are reimbursable and if a district wants to provide more services they could pay for them. For example, he said some districts provide transportation to private school. Senator Leman asked if the highest paid drivers were paid twice the minimum wage. Mr. Kalmes replied that the district currently pays starting drivers $11.55 per hour and that Laidlaw pays its beginning drivers $7.30 per hour, which will increase July 1, 2000. He shared that $11.30 is twice the minimum wage. Mr. Kalmes went on to explain that there used to be two service providers competing for the district's contracts and that the contract was usually awarded to each provider on alternating terms. He said this was because the current contract holder had to gradually increase the salaries of drivers over their five-year time of employment. Then the competing provider, he stated would be able to under-bid the existing provider, because it could use a starting salary for all drivers, which the existing provider could not. Until Laidlaw bought out the competing providers, he said no contractor was ever able to win consecutive contracts. He stated that the providers won the contracts "on the backs of the drivers," which he said was one of the reasons the statute was changed to require the drivers' salaries to be at least twice the minimum wage. Senator Leman thought that statute does not dictate what the drivers of transit or sanitation services were paid. He surmised that the salaries were market-based, although he did not know whether that was appropriate. Senator Leman also had been told by Anchorage School District, that one reason for the district-operated routes, was the measure of competition they instituted with the contractor. He asked if that would not also drive the market for school bus drivers. Mr. Kalmes believed it has helped control the costs and has also helped the district control costs. He cautioned that the biggest problem is driver shortage and that it is difficult to keep employees. He attributed the problem to the need to increase salaries. Senator Leman requested a better summary of the cost allocation than the Committee currently had. Senator Wilken remarked the conversation relating to the spreadsheet did not belong in the Committee and was the reason for the legislation. He asserted the discussion belonged in the school districts since they would be sharing in the cost. Senator Wilken disagreed with having the legislature setting a model contract that districts have to follow. He thought the process should be done at the local level especially if the districts will be sharing in the costs. He added that he did not object to national standards as they apply broadly to Alaska. Senator Green asked how much the Anchorage School District currently contributes to pupil transportation. Mr. Kalmes answered that he did not know exactly but that the amount was over one million dollars. He explained these costs reflect the district's percentage of the services that are not required under regulation, including hazardous training and mid-day kindergarten routes. Senator Green requested detailed information because she thought there would be major differences between the amounts contributed by each district to cover local needs. Co-Chair Torgerson announced that amendments for SB 256 and SB 276 would not be heard at this meeting. Co-Chair Torgerson said when first presented with the bill, he was inclined to disallowing the supplemental budget request and requiring the districts to renegotiate contracts. He said he requested the next witness to prepare an informal survey of the districts for their reaction. [Copy on file.] KARL ROSE, Executive Director, Association of Alaska School Boards thanked the Committee for the supplemental appropriation. However, he said that this legislation pertains to FY 01 and the association had questions to the bill as currently written. Mr. Rose stated one of the questions related to the baseline that the bill establishes using FY 01 contracts. He asked if the baseline was 100 percent of the contracts or if it was undetermined, as earlier discussion indicated. Mr. Rose remarked that he thought it was inappropriate to address co-payments in the manner prescribed in the bill because of the recent changes to the foundation funding formula implemented through SB 36. He argued that the updated formula does not account for transportation expenses and to therefore require a co-payment for pupil transportation was an unfunded mandate. Mr. Rose understood the need to provide incentives to school districts to try to control the costs. However, he stressed the to instigate the co-payment requirement without addressing the need for securing the necessary revenue through the foundation formula was inappropriate. He stated that the districts have tremendous needs and do need the $5 million the new contracts require. Co-Chair Torgerson wanted district to be involved in the process so the legislature was not "blindsided" with greatly increased contracts. Co-Chair Torgerson stated that although amendments would not be acted upon at this meeting, he wanted to explain them for the benefit of those present. Amendment #1: This amendment makes the following changes to the title of the bill: Page 1, line 1, following "students;" Insert "and to minimum expenditure for instruction;" The title then reads: "An Act relating to the state funding for transportation of public school students; and to minimum expenditure for instruction; and providing for an effective date." The amendment also inserts a new bill section to read: "Sec. 2. AS 14.17.520 is amended to read: (a) A district shall budget for and spend a minimum of 80 [70] percent of its school operating expenditures in each fiscal year on the instructional component of the district budget." New Text Underlined [DELETED TEXT BRACKETED] Co-Chair Torgerson said he prepared this amendment because he felt it was important that the districts focus on the bigger concern of directing most funds directly to instruction than the concern over bussing contracts. He asserted the ten-percent increase over what was stipulated in SB 36 was in direct response to the Board of Education's action the past weekend to allow the administrative costs to be included in classroom expenditures. He noted the allowed administrative costs consisted of salaries of principals, assistant principals, support staff for school administration, supplies, materials, communication and school administration travel. He stressed that while the 80 percent figure might not be the best choice, it was not the legislature's intent to allow the state school board administration to arbitrarily redirect the funds to administration. Senator Green added that if changes to SB 36 were considered, the Committee also needs to look at the waiver provision that allows some districts to have a higher percentage of funds spent for administrative costs. She stressed that the waiver provision was very liberal. Co-Chair Torgerson said that while the waiver provision was important, the board's action circumvented the entire waiver process. He admonished that the board was making changes to the funding formula process before it even took effect. Senator Adams noted that while as much money as possible should go to students, it was not possible to meet specific percentages. He spoke to fuel costs and the extensive deferred maintenance needs. Co-Chair Torgerson understood that concern as discussed when SB 36 was debated upon and that was his reason for supporting the waiver. Tape: SFC - 00 #66, Side A 10:50 AM Amendment #2: This amendment inserts language into the bill on page 1, following: (2) 100 percent of the cost of operating the student transportation system when the transportation is provided under a contract with the school district, except that only 50 percent of those costs that are in excess of the amount received by the school district for student transportation reimbursement in fiscal year 2001 shall be reimbursed to the school district. The added language reads: "; the 50 percent limitation imposed under this paragraph does not apply to student transportation system operating costs that are incurred as a result of an increase in student enrollment." New Text Underlined [DELETED TEXT BRACKETED] Senator Green explained the amendment, which exempted districts that have increased enrollments from the 50 percent limitation. Senator Adams requested the effective date be considered. Co-Chair Torgerson was disappointed the Committee did not hear from more school districts and said the bill would be brought up again. Senator Wilken noted a resolution in support of the bill from the Fairbanks North Star School District. The bill was HELD in Committee.