SENATE BILL NO. 290 "An Act relating to state funding for transportation of public school students; and providing for an effective date." PATRICK HICKEY testified via teleconference from Kenai to address Amendment #1, increasing the minimum percentage of school operating expenses to 80 percent from 70 percent, which was not offered. He requested that the Committee give the Association of School District Officials the opportunity to divide the "section 400" accounting component to reflect the shared classroom and administrative duties of school principals. DAVE JONES, Director of Finance, Kodiak School District testified via teleconference from Kodiak to address his concerns with the fifty-fifty clause for reimbursement of increased pupil transportation costs. He said the Kodiak School District was a good example of why this would not work. He spoke about the minimum wage required to pay school bus drivers. He stressed the only way the district could cover the costs would be to take money from the classroom, which would be contrary to the intent of the formula funding program. He described the school district's efforts along with other districts to encourage competition to bring the costs down. ELIZABETH BACOM, President, Petersburg School Board, testified via teleconference from Petersburg about her understanding that this legislation would apply to the Cost of Living Allowance (COLA) portion of the pupil transportation contracts. She spoke of the hardship of declining funding due to declining enrollment and how this additional funding reduction would force the district to take money from the classrooms. DARRYL HARGRAVES, Executive Director, Alaska Council for School Administrators testified in Juneau about the matter of fairness across the state. He remarked that most of the Committee members represented large school districts and that other smaller communities would have difficulties meeting the matching fund requirements. He stressed that the bus driver contracts were strictly negotiated following many requirements imposed by the Board of Education. He talked about the complexities of the contracts and the required routes. SENATOR ROBIN TAYLOR thanked the Committee for including Section 3 in the bill. [Description forthcoming.] Senator Wilken moved to adopt CS SB 290, 1-LS1555\N as a workdraft. Co-Chair Torgerson objected for an explanation. Senator Wilken detailed the changes made to the bill in the committee substitute as follows. Section 2 - provides that school district pupil transportation costs eligible for state reimbursement are subject for following adjustments: (1) sets the funding level received by the school district for student transportation in FY 01 is considered the limit for future reimbursement. (2) stipulates that costs resulting from new school facilities, increased enrollment or imposed by state or federal law are excluded from the reimbursement calculation (3) allows the reimbursement limit to increase each fiscal year by four percent or the Anchorage Consumer Price Index (CPU), whichever is less. (4) sets out the pupil transportation cost excess of the limit, shall be reimbursable by 50 percent. Section 3 - addresses the 70-30 percent split of operating versus administrative expenditure issue. It clarifies the definition of the instructional component for the purpose of determining the school district's operating budget's minimum expenditure for instruction. It sets out that expenditures for school administration, principals, assistant principals or other assistants employed to supervise administrative operations of a school bay not be considered instructional expenditures. Section 4 - lowers the Average Daily Membership (ADM) threshold upon which a school district can count a facility as a separate school from 750 to 450. Sections 5 and 6 - set out the effective dates Senator Phillips asked which communities are allowed under the provisions of Section 4. EDDY JEANS, Manager, School Finance and Facilities Section, Education Support Services, Department of Education and Early Development, answered that Section 4 would apply to Delta Junction/Greely, Petersburg and Wrangell school districts. Senator Phillips asked if the legislature was not the "assembly" for delta junction Mr. Jeans responded that he believed in essence, that was correct. Senator Phillips asked why the legislature could therefore not mandate that community to form its own borough by making school funding a contingency. Mr. Jeans responded that AS 14.17.905. Facilities Constituting a School., applies to school districts whether they are a municipality or a Rural Education Attendance Area (REAA). He stated that Section 4 of the committee substitute therefore establishes a threshold of how the department can determine how communities can make school- size adjustments. Senator Phillips repeated his question of what was preventing the legislature from mandating Delta Junction to form a borough. Co-Chair Torgerson said Mr. Jeans was not the person to address that question. Co-Chair Torgerson stressed that certainly the legislature had the power to mandate boroughs. Senator Phillips said he had concerns with Petersburg and Wrangell paying for the services and Delta Junction not paying. Co-Chair Torgerson remarked he had concerns with the entire Section 4. Co-Chair Parnell asked if Delta Junction/Greely is the first unorganized area that would qualify for funding under this section. Mr. Jeans replied there were other REAA communities that would be affected by the Section 4 clause. Co-Chair Parnell commented that this was a much bigger issue than just this one school. Senator Adams addressed the language in Section 2 (4), "only 50 percent of these costs reimbursable under this section that are in excess of the sum calculated under (1) - (3) of this subsection shall be reimbursed to a school district." He asked if this bill increased the "floor" of pupil transportation by reviewing the CPI, which is not used in the foundation formula. He wanted to know if the differences had been calculated. Senator Wilken answered that figures had not been calculated. Senator Adams asked if therefore the increases were unknown. Senator Wilken replied that the floor would be the amount set in the FY 00 budget, which may change with the FY 01 budget if the requested $5 million increase is funded. Senator Adams wanted to see the figures because he thought the costs could be higher. Senator Adams then asked if Section 3 applies to rural districts where some principals not only run the school but also teach courses. Senator Wilken shared that there is a formula the department can use for small school districts to classify the principal as a working teacher. However, he said schools with more than 50 students would not qualify for this consideration because the principal or assistant is responsible for managing the school. Senator Adams spoke of fair and equitable funding for students. He noted Amendment #2 of the previous committee substitute and Amendment #6 for the current version, both of which he sponsored. These amendments he explained, address the issue that rural school districts receive only 60 cents on the dollar. He referred to the McDowell study that showed teachers in rural districts were paid differently because of their high cost of living. He wanted the Committee to consider Senator Wilken replied that he had not considered the first amendment when drafting this committee substitute and had only just seen the second. Co-Chair Torgerson asked if the department had calculated the impact of Section 4 on the fiscal note. Mr. Jeans had and said the added cost would be approximately $1,009,800. He noted that the department would be opposed to the changes in the committee substitute because of the requirement of SB 36 to evaluate the effectiveness of that bill and report back to the legislature with recommendations in 2001. Constant changes to SB 36 would make the assessments difficult, he asserted. Senator Adams asked what the cost would be of the proposed Amendment #6 to "stop the eroding floor" and whether the department supports or opposes that amendment. Mr. Jeans replied that the erosion of the floor went from approximately $17 million in FY 99 to $15 million in 2000. The overall fiscal impact, he said would be the $15 million on the floor at this time. He said it would be hard to project how long it would take for that full amount to erode. In response to the question on the department's position on the amendment, Mr. Jeans repeated that the department would be opposed to any changes to the foundation funding formula as set by SB 36. Senator Adams objected to the adoption of the committee substitute on two points. The first is the unknown costs of Section 2, and the second is the absence of the provisions of Amendment #6. A roll call was taken on the motion. IN FAVOR: Senator Green, Senator Donley, Senator Leman, Senator Wilken, Co-Chair Parnell, OPPOSED: Senator P. Kelly, Senator Phillips, Senator Adams, and Co-Chair Torgerson The motion PASSED (5-4) The committee substitute version "N" was adopted as a workdraft. Co-Chair Torgerson established that the proposed amendments would not be offered. [Copies on file.] AT EASE Amendment #5: This amendment deletes, "principals" from page 2 line 21 of the committee substitute. The amended language in Section 3 reads as follows. (1) "instructional component" means [INCLUDES] expenditures for teachers and [FOR] pupil support services, but does not include expenditures for school administration or for assistant principals, or other assistants employed to generally supervise administrative operations of a school; New Text Underlined [DELETED TEXT BRACKETED] Senator Green moved for adoption. Co-Chair Torgerson objected. Senator Green spoke to earlier discussions regarding the need for classroom supervisors to provide assessment on the teacher performance in the classroom. She stressed that if a principal position was removed she thought the progress of improved performance would go backward. While she did not think 100 percent of the principal salary should go to instruction, she thought that the portion of time spent on instructional duties should be accounted for accordingly. Co-Chair Torgerson replied this was the reason for the 70- 30 rule. He stated that this provision changed the intent back to the original SB 36 rather than the recent Board of Education regulation. He warned that if the percentages were constantly changed, the board would be unable to provide adequate assessments of the foundation formula- funding program. Senator Wilken explained that there are two conflicts occurring at once. First, he said was the placement of the principal in the organizational structure of the school as a manager. However, he shared, the issue before the Committee is how the principal position is accounted for in the expenditures of the school district. He stated that only the accounting component is changed. He stressed that in order to follow the 70-30 requirement the procedures need to remain constant. A roll call was taken on the motion. IN FAVOR: Senator Green OPPOSED: Senator P. Kelly, Senator Wilken, Senator Phillips, Senator Donley, Senator Leman, Senator Adams, Co- Chair Parnell, Co-Chair Torgerson The motion FAILED (1-8) The amendment FAILED to be adopted. Amendment #6: This amendment deletes "transportation of" from the title on page 1 line 1. The amended language reads as follows. "An Act relating to state funding for public school students; relating to a minimum amount of expenditures by school districts for instruction; determining the facilities constituting a school for purposes of public school funding; and providing for an effective date." The amendment also inserts a new bill section on page 3, following line 8 with an effective date of July 1, 2000, to read as follows. "Sec. 5. AS 14.18.490(d) is repealed." Senator Adams moved for adoption. Co-Chair Torgerson objected. Senator Adams expressed that all students, regardless of where they live, should receive the same amount of funding. He stressed this is the worst kind of discrimination. AT EASE 6:43 PM / 6:47 PM Senator Wilken made a statement about Senator Adams's comments regarding the color of one's skin that disturbed him. He said the intent of SB 36 was to instill fairness. He listed the several rural districts that actually benefited from the formula funding formula. He suggested that removing this floor would cause the funding mechanism to revert back to the previously flawed formula. Senator Adams responded the school districts cited by Senator Wilken were short-funded beforehand and were only now starting to receive fair funding. He asserted that if Senator Wilken's explanation was so good, then the figures should be reversed and urban schools should receive 60 cents on the dollar and rural schools receive the full dollar. A roll call was taken on the motion. IN FAVOR: Senator Adams OPPOSED: Senator Phillips, Senator Green, Senator Donley, Senator Leman, Senator Wilken, Co-Chair Parnell, Co-Chair Torgerson ABSENT: Senator P. Kelly The motion FAILED (7-1-1) The amendment FAILED to be adopted. Senator Green commented that she appreciated the efforts that went into this legislation. However she needed to understand the impact on those districts that did not have an opportunity to renegotiate their pupil transportation contracts before the floor was set. She referred to a survey that showed those that had negotiated new contracts had an advantage of several million dollars over those districts that had not yet renegotiated. Co-Chair Torgerson commented that the new committee substitute negated all the 50-50 efforts since it allowed for multiple adjustments. He noted that about the only item not accounted for was the COLA. Senator Green did not understand it that way. She would prefer to be a district that had already renegotiated rather than one that had not yet done so. Co-Chair Torgerson stated that the costs of the new contracts would not be known, but if the total were for $7 million, the state would be required to pay the $7 million. Senator Donley wanted to see progress made towards the charter school problem, but he noted he did not have an amendment drafted to address this issue. Senator Adams restated his request for calculations from the department. Mr. Jeans responded that to calculate that would be very difficult and listed reasons why. He was able to say that the COLA increases in Anchorage had been less than four percent since 1982. This would make Senator Green's concerns mute, he stated. Senator Adams asked if the witness could tell the Committee if the cost would be higher or lower than the Committee's calculation of $5 million. Mr. Jeans could not predict exactly what the increases would be but that all current contracts contain COLA provisions. He noted that the Railbelt area districts had issued Requests for Proposal (RFP), which he thought, would bring down the costs by encouraging outside competition. Senator Adams asked if that would be the case only if there was outside competition. Mr. Jeans affirmed. Senator Adams addressed Senator Green's concerns about the effective dates of contracts. He asked if expiring contracts would be taken care of because of the staggered effective dates of Sections 5 and 6. Mr. Jeans responded that Section 6 establishes FY 01 as a base year that any increases will be measured. If fiscal note of over $1 million accompanied the bill, he said, the entire pupil transportation would be fully funded at the Department of Education and Early Development's request and that would establish the base line for the future. Senator Green asked if Mr. Jeans could assure her that those districts that have not yet renegotiated their pupil transportation contract would not be at a detriment. Mr. Jeans answered that was correct, provided the Anchorage COLA did not exceed four percent over the term of the contract. If did go above four, he explained, the increase would be split 50-50 between the district and the state. Co-Chair Torgerson clarified the COLA would be the only expense reimbursable under normal contract provisions and that increased enrollment would not be impacted. Mr. Jeans stated that in his understanding of the committee substitute's language FY 00 would be established as the base year. He continued that if a district required additional routes or added a new school or increased student population would increase the base and set a new threshold for the following years. He qualified that, if this were not the case, he needed to know. Co-Chair Torgerson assured the witness that was the Committee's intent. Senator Green spoke of the efforts made by some districts to combine their contracts with other districts to encourage competitive bidding. She would contend that after one or two years, the state would be back to having only one provider. She did not think this was a competitive arena and therefore, this approach was not a long-term solution. Mr. Jeans agreed that could be the result, but that by not making the step forward, the state was locking into the existing contractors. He relayed that in conversations with Outside contractors, he was told they could not break into the Alaska market with the small routes. Therefore, he stated, aligning these contracts makes the market more appealing to competitors. Tape: SFC - 00 #85, Side B 7:03 PM Mr. Jeans continued that contracts must consist of more than 100 busses in order to make it worthwhile for Outside providers to enter the market. Senator Green gave a scenario of high oil prices resulting in high fuel prices to operate the busses and asked if those increased costs were included in the price of the contracts Mr. Jeans answered that was his interpretation as well. Senator Wilken moved to report CS SB 290, 1-LS1555\N from Committee with forthcoming Department of Education and Early Development fiscal note. Senator Green objected. Co-Chair Torgerson objected saying that while he would not prevent the bill from reporting out of Committee, he could not support Section 4. He stressed that he could not agree to a million-dollar increase to the operating budget already agreed upon by the legislature. A roll call was taken on the motion. IN FAVOR: Senator Wilken, Senator P. Kelly, Senator Phillips, Senator Donley, and Co-Chair Parnell OPPOSED: Senator Adams, Senator Green, and Co-Chair Torgerson ABSENT: Senator Leman The motion PASSED (5-3-1) The bill was MOVED from Committee.