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 second hearing for this bill in the Senate Finance Committee. The original version of the bill, 1- LS1555\A, was unchanged. DAN BECK, Superintendent of Schools, Delta Junction, testified via teleconference from Delta Junction to ask what would happen if a new route were established and if the district would have to pay 50 percent of that cost. Co-Chair Torgerson answered that according to the legislation, the district would pay 50-percent of all new costs incurred after the FY 01 base was established. Mr. Beck stated that he therefore did not support the bill. He said that during this time when the state is trying to put more money directly into instruction, this bill would hamper that effort. Co-Chair Torgerson commented that recent Alaska Board of Education action gave districts more flexibility in classifying administrative costs as instructional. The board adopted regulations allowing the entire administrative expenditure category of the uniform accounting system to be considered as instructional rather than administrative. Amendment #1: This amendment inserts new language into the title of the bill and adds a new section as follows: Page 1, line 1, following "students;": Insert "and to minimum expenditure for instruction;" Page 1, following line 13: Insert a new bill section to read: "Section 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] [Note: This amendment was never offered but was discussed.] MIKE FISHER, Assistant Superintendent, Business Finance, Fairbanks School District, testified via teleconference from Fairbanks talked about the district's pride in the low percentage spent on administrative costs and how this bill would adversely affect their efforts. He spoke of the district's efforts to meet an 80-percent for instruction goal, saying that for some districts this figure could be unrealistic. Co-Chair Torgerson agreed that 80 percent of funds as a minimum allowed for instructional costs was "a shot in the dark." He again referred to the Board of Education's actions, which essentially lowered the percentage to 75.5. Senator Wilken asked the witness if there was a principal for every school. Mr. Fisher responded there is. Senator Wilken wanted to know who decides on the number of assistant principals and support staff for the assistant principals. Mr. Fisher answered the number of assistant principal positions was a school board decision and that the principal of each school has discretion as to how many support staff positions are incurred. He noted these positions along with the principal are a strong component of the school level administration. Senator Wilken spoke of the accounting methods for showing these administrative costs. He asked if a new category "405" could be added to list assistant principals and their support staff separately. Mr. Fisher assured that the district would have no problem accounting for those positions separately. He said that it could affect the instructional percentage by 2.5 to three percent. Senator Wilken asked if the witness thought that most other school districts in the state could also follow this method. Mr. Fisher replied that most districts could adjust their system to separately account for their assistant principals and support staff. Senator Wilken commented that was the same issue he and Co- Chair Torgerson talked about when testifying before the Board of Education. Senator Wilken stressed this was simply a function of cost accounting to isolate the cost of administration. He warned that if the legislature allows school districts, school boards and principals to determine what qualifies as an instructional component, the system is opened up to creative accounting. That was the reason he was in support of a sub-account to account for principals and assistant principals. Senator Green asked if this matter was before the Committee. Co-Chair Torgerson replied that a proposed amendment was distributed but that a motion was not on the table. RICHARD CROSS, Commissioner, Department of Education and Early Development, spoke to the proposed amendment to increase the percentage of expenditures for instructional purposed from 70 percent to 80 percent. He urged the Committee not adopt the amendment, in part because the department has supported the legislature's efforts to reduce administrative costs. He stressed that school districts did not support this provision in SB 36 from the 20th legislative session, saying it was an oversimplified answer to a complex problem. He said the department could not oppose the concept of moving administrative expenditures to instructional areas. Mr. Cross disagreed with Senator Wilken's statement that a sub-account for assistant principals and support staff is a matter of cost accounting, saying it is instead a matter of how schools work. He stressed that the principals directly supervise the teachers, which improves the quality of instruction. He stated that creative accounting is already occurring with some districts that list their assistant principals as head teachers. He said that head teachers are not required to hold an Alaska Type B certificate but that without this certificate, the teacher cannot evaluate other teachers. As a result, he lamented, teachers are being evaluated by people who do not work in the same school building but rather central office administrators, thus there is no direct supervision. He cautioned that this is not effective supervision of instruction. He said that the department is attempting to remedy this by including those positions that are directly involved in the supervision of instruction as a part of the instruction component. The current categories are too broad in his opinion. He suggested further delineation, as proposed by Senator Wilken to separate those administrators that directly supervise instruction. Other costs that are not directly related to instruction, he felt should not be classified as instructional. Mr. Cross spoke of the progress made with the school districts in their willingness to strive toward the 70 percent for instruction provision. He urged that this sub- account be created and that those costs be considered instructional to allow the districts to meet the 70 percent goal. He warned that by simply raising the percentage, most districts would be unable to meet that goal and that so many would require waivers, the test would not be taken seriously. Co-Chair Torgerson interjected saying that the witness's proposed sub-account method was not what the Board of Education implemented. Instead, he admonished, the board allowed the entire "400" component, to be considered instructional, which includes supplies, travel expenses and all support staff working in a central administrative facility. He stated that if the board had made allowances only for principals and assistant principals, the proposed amendment would not have been drafted. Mr. Cross defended the board's action saying the "400" component was not delineated at this time to allow for specific instructional expenditures. He said the board gave specific direction to the department to break down the expenditures afterwards to ensure that those administrators directly involved with instruction were classified separately. Co-Chair Torgerson accused the department of counting the administrative costs twice, once as instructional and again as administrative. Mr. Cross disagreed with the assessment. Co-Chair Torgerson asked what deductions are being made to teachers and instruction costs versus administrators and administrative costs under the current school budget deliberations. Mr. Cross responded that school districts were making decisions to reclassify personnel in include them in instruction costs. He thought those decisions were not in the best interest of improving the quality of teacher performance. He gave the replacement of assistant principals with head teachers as an example. He stressed that the department's interest was not cost accounting but placing those administrators who make decisions regarding improving teachers' performance in the school rather than at a central office. Senator Wilken gave a scenario of a district currently at 68 percent for instruction and its attempt at reaching 70 percent the next year by simply hiring an assistant principal and support staff and classifying them as instructional expenditures. Mr. Cross replied that would be a decision that could work under the Board of Education's recent action to allow principals to be classified as instructional expenditures. Senator Wilken asked if the department was working to develop sub-accounts for principals and support staff within the "400" category. Mr. Cross responded that the Board of Education when adopting the aforementioned regulations, gave the department specific instructions to separate the costs of those personnel directly related to instruction. He said the board does not agree that the other costs should be considered instructional and directed the department to report back with the specific figures. Co-Chair Torgerson remarked that the board adopted regulations to allow the entire "400" category anyway. Mr. Cross agreed the board did allow the entire category, but that it was the only option available to them. Senator Leman asked if the Board of Education's deliberations suggested that a principal could be both supervising instruction and also performing other non- instruction related administrative duties. He wanted to know if accounting of the position could be broken down to reflect the amount of time spend on each area. Mr. Cross answered that the breakdown can be done and that principals in many small schools supervise instruction and also directly provide instruction. In larger schools, he said, it was unreasonable to expect one principal to provide supervision to all the teachers and that a vice- principal is also necessary to assist with supervision. He continued that an additional vice-principal might be necessary to provide discipline or over see other activities. He stressed that school leaders' efforts to improve the quality of teaching are an important part of instruction. Senator Leman asked if those personnel who perform duel roles could break down the time spent on each function. Mr. Cross responded that kind of cost accounting can be done, but should be avoided. He talked about federal requirements for timesheets and the need to account incremental minutes for each federal program. He cautioned that too much time spent on cost accounting wastes money and negates any efficiency gained. Senator Adams commented that while we all want the most money spent in classroom as possible, there were problems getting funding for students in rural Alaska. He asked how many waivers were granted in the previous year for those districts meeting 65 percent of expenditures to instruction. He then asked if this amendment were adopted how many waivers would be necessary. Mr. Cross believed that 13 waivers were considered in the current year to schools meeting 65 percent of expenditures for instruction. Senator Adams wanted to know how many school districts met the 80 percent to instruction criteria. Mr. Cross answered that almost all of districts met this goal. Senator Green commented that all staff is included in the formula when miscellaneous school expenditures are calculated using the Pupil Teacher Ratio (PTR) calculations, a process she has questioned. She suggested that if the PTR calculation process was used in preparing SB 36 it may have been a mistake. Co-Chair Torgerson replied that the calculations used were recommended in the McDowell study on school funding and that he did not think PTR was considered. Senator Wilken noted that the Committee had found in its consideration of SB 36, that four school districts had more money going to administration than to the classroom. Senator Wilken next relayed the two important elements of cost accounting. First, he said is the need for clear definitions of the uniform chart of accounts and the second element is to analyze as a function of time and track changes. Therefore, he stated that if the legislature allows school districts, school boards or individual schools to vary the definitions, the changes over time are meaningless. He understood the importance of assistant principals, but thought those positions need to be in a sub-account category that could be observed and compared against other districts. For Senator Green's benefit, Mr. Cross repeated the earlier conversation regarding the B certificates required by evaluating teachers but not by head teachers. He again stressed the department's belief that teachers need to be supervised on a daily basis by someone working in the same school rather than a removed central administration facility. Co-Chair Torgerson noted that some rural schools were showing zero percentage of expenditures spent on administrative costs because they were already shifting their accounts. Senator Green wondered if the administrative percent includes superintendents hired under contract. GARY BATER, Superintendent of Schools, Juneau School District, spoke in opposition to the bill. He stressed that the hardest addition to a school district's budget is an administrative position. He stated that whenever cuts are proposed, the public clamors to eliminate administrators. He thought school districts were under constraint with or without the 70 percent for instruction restrictions. He stated that SB 290 is about shifting future increases of pupil transportation to local school districts and away from the state. He said pupil transportation was an essential component of education. He thought the current law has worked well. He believed the Juneau School District's rate of growth and pupil transportation costs have been below the rate of inflation once adjusted for increased enrollment. Senator Wilken asked how the school district views its participation with pupil transportation. Mr. Bater responded that the district does not make any changes without approval from the Department of Education and Early Development. Rather, he said the district proposes to the department for approval of a new route when enrollment increases and busses become overcrowded. He asserted the department asks tough questions and is thorough in its review. He detailed the process to obtain a new bus route. He stated that the district views itself as an agent of the department. Senator Wilken and the witness discussed the levels of bus routes and the ability to change from a three-tier system to a two-tier system and the expense involved. Senator Green pointed out that the state is not required to cover the pupil transportation costs, noting the word, "may" rather than "shall" in statute. CARL ROSE, Executive Director, Association of Alaska School Boards spoke specifically to the issue of requiring the districts to co-pay any increased costs, saying it was inappropriate at this time. He spoke of aligned contracts, which were too recent to see any realized savings. He also stressed how funds allocated to classroom instruction would be further stretched to cover pupil transportation costs. He called the bill an unfunded mandate. Mr. Rose continued that when the co-pay issue is raised in the future, the foundation formula should be adjusted to increase revenue to cover the district's costs of pupil transportation. He suggested that an incentive should be created to allow any realized pupil transportation savings to be retained by the district. Co-Chair Torgerson interrupted to ask if the witness believed that a 48 percent increase to the cost of pupil transportation was entirely attributable to an adjustment to the contracts. Mr. Rose responded that he thought there were a number of reasons the costs increased. He pointed out that other costs incurred in the previous contracts were omitted from the new contracts. Co-Chair Torgerson said he has offered to all parties the opportunity to present a better system. However, he said there has been no suggestions other than having the state pay the entire cost and if savings can be identified with the contracts, having the state pay to the district the difference. Mr. Rose appreciated the co-chair's concerns but warned about later costs and an unfunded mandate. Mr. Rose commented on the accounting of assistant principal positions separately saying he agreed with this suggestion, but that he did not see any advantage to a breakdown between assistant principal and principal positions. He also opposed changing the total instructional percentage to 80 percent of expenditures. He asked the Committee to have patience in allowing the 70 percent goal to be reached. Amendment #2: This amendment inserts language on page 1, line 13, following "district" as follows: "; 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" [Note: This amendment was never offered but was discussed.] Mr. Rose stated that he supported this amendment. He commented that the overall impact of the bill was yet to be seen and listed figures of recent student enrollment. Co-Chair Torgerson asked for explanation of the witness's implication that costs have been passed along to local communities. Mr. Rose listed the reduction of state revenues provided to the school districts and the possible reduction in municipal assistance grants. He predicted that the local residents could be required to pay an additional $6 million. Co-Chair Torgerson asked if the witness was suggesting throwing the entire foundation funding formula out. Mr. Rose clarified that was not his suggestion but that the association wanted a certain percentage of funds spent on instruction. However, he stated that the state is allocating less money to districts by the state and that the percentage of local contributions is subsequently rising. Mr. Rose then asked the co-chair if SB 105, relating to public school buildings was being considered for inclusion in SB 290. Co-Chair Torgerson answered that it may be. Co-Chair Torgerson ordered the bill HELD in Committee. Tape: SFC - 00 #75, Side A 10:42 AM.