SPONSOR SUBSTITUTE FOR SENATE BILL NO. 1 "An Act relating to the base student allocation used in the formula for state funding of public education; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. Co-Chair Wilken stated this bill "increases the student dollar in our base student allocation in our foundation formula." He remarked, "all of us have heard the school bell; it's rung" and that that this legislation is the start of addressing the need of adequate funding for education. AMENDMENT #1: This amendment increases the base student allocation from the existing $4,169 currently provided in AS.14.17.470 and the $4,263 amount proposed in the bill, to $4,576. Co-Chair Green moved for adoption and commented that although she supports this legislation, this amendment would be an improvement. AT EASE 9:05 AM / 9:06 AM Co-Chair Wilken objected for an explanation. Co-Chair Green noted this amendment would increase the base student allocation, and result in an approximately $82 million increase to the foundation funding formula distributed across the state over the FY 04 budget year. Senator Bunde asked the increase per student over the current funding amount. Co-Chair Green replied $407. Senator Bunde asked the reason for this amount of increase. Co-Chair Green relayed concerns expressed regarding funding for each school district, along with the unanticipated increased costs of the Public Employees Retirement System (PERS) and the Teachers Retirement System (TRS) and increased insurance expenses of up to ten percent, which the school districts could not control. She shared that she has received comments from some districts that she has never before heard from, that despite efforts to control costs, increased funding for these expenses are necessary. She informed that this funding increase would allow districts to budget for the next two years. Senator Bunde remarked that his was "well aware" of the PERS/TRS "problem" but expected it should be funded separately rather than "lock it in" to the base student allocation. He supported utilizing the earnings reserve fund for these expenses. He also noted that although this increase would eliminate the budget deficit of the Anchorage School District, it would also increase the allowable local contribution. He characterized this proposal as "good news/bad news." Co-Chair Green hoped that most of the districts that have requested the legislature solve the funding problem understand that this proposed increase would increase the local funding limits and allow districts to increase local contributions. She remarked that this would allow community members to "participate" in the fiscal situation of their school districts. She also expressed that no funding increases would be requested the following year, given the total increase of the foundation funding formula and funds generated locally. She predicted this increase would address the PERS/TRS situation for one to two years, although she understood that a multiple year solution of five to twenty years would be required. She remarked that this increase should convey that the legislature is accepting responsibility and that local government taxpayers and citizens should also accept responsibility. Senator Bunde pointed out that 24 districts would not provide increased local contributions because they make no contributions currently. Co-Chair Wilken commented that some school districts do not contribute to the education expenses in their community and therefore those districts would not receive increased local funding. Senator Hoffman asked if the intention is that the PERS/TRS expenses would be addressed within the base student allocation funding, and whether this funding would be sufficient according to school districts' estimates. He understood from meetings with some school district representatives that this funding plus an additional one-time allocation is necessary. Co-Chair Green shared that the funds indicated by district representatives as necessary for the PERS/TRS and other increases would be provided for in the amendment. She predicted that these funds would be adequate for most of the larger school districts but qualified that some smaller districts could have an anomaly and require a different solution. She stated that this amendment would provide funding necessary for the PERS/TRS increased expense in those districts she addressed. Senator Hoffman pointed out this funding increase would be statutory and does not address the operating budget. He asked how this proposal compares to Governor Murkowski's budget request and his plans, noting that the Governor has announced he would support a draw from the CBR of no more than $400 million for FY 05 and that the legislature must generate an additional $200 million in revenue, while this amendment would increase the budget $82 million. Senator Hoffman asked if the intent would be that the legislature would increase the amount of revenue generated to $282 million, or reduce other appropriations to accommodate this increase. He recalled the Governor's comments to the Conference of Alaskans emphasizing his adamancy about dramatic budget reductions. Senator Hoffman asked Co-Chair Green if the intent is to meet the Governor's expectation of withdrawing no more than $400 from the CBR. Co-Chair Green replied that this amendment this is the first portion of the budget process and represents an $88 million increase for education. She anticipated that the Governor would support this funding increase because he supports education; she anticipated "great cooperation". Senator Hoffman supported the concept of this amendment; however he countered that the Governor also supports operating government without withdrawals from the CBR. He pointed out that the governor has a "red pen" i.e. authority to exercise the line item veto on appropriation legislation and has the final say unless the legislature overrides the veto with a three-quarters majority vote. Senator Hoffman remarked this is a high standard. He emphasized that he supports education funding but needed assurance from Co- Chair Green that the governor would also support an increased budget and not exercise the line item veto authority to limit the CBR draw to $400 million. Co-Chair Green reiterated this is the first portion of the budget process and that more would be known in the coming weeks. She informed that she has been in discussions with the Governor. Senator Hoffman asked if Governor Murkowski exercised the line item veto, whether the legislature would "take a stance" and override those vetoes. Senator Hoffman agreed with this increased funding for education and that it should be appropriated before the end of the legislative session, provided that the Senate Minority's goal to spend monies from the CBR as a last option is achieved. Senator Bunde noted he has heard this amendment would cost $82 million and also $88 million and asked the correct amount. Co-Chair Wilken stated that the cost of SB 1, as amended would be $82 million. Co-Chair Wilken removed his objection and the amendment was ADOPTED. Co-Chair Wilken noted those present to testify to this bill. Co-Chair Wilken ordered the bill HELD in Committee. AT EASE 9:23 AM / 9:23 AM