SENATE BILL NO. 192 "An Act relating to reimbursement of municipal bonds for school construction; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. Co-Chair Green, the bill's sponsor, explained that this bill would extend the original January 1, 2005 termination date applicable to the public school construction dept reimbursement program to July 1, 2006. This one and a half year program extension would allow schools to bond and solicit State assistance in building and renovating schools. While the Sponsor Statement primarily addressed school expansion needs in the Mat-Su Valley area, which is the State's "most problematic area", for over population in its schools, many school districts have similar expansion needs. Were the current student growth trend to continue in the Mat-Su area, a new school would need to be constructed each year. "It is very difficult to keep up and keep our classrooms, not only in sizes, but to provide for enough services ? for all our students." She noted that areas of the Mat-Su Valley that had previously experienced little growth are now being developed. Other districts throughout the State are also experiencing construction and renovation needs. 10:48:45 AM EDDY JEANS, Director, Division of School Finance, Department of Education and Early Development, stated that "the Department is opposed to the extension" of this program "at this time". When the Legislature authorized the debt reimbursement program in the year 2002, they had included a provision requiring that the Department provide a report by February 1, 2006 that would review the effectiveness of the school construction grant and school construction debt reimbursement program. Mr. Jeans reminded the Committee that a separate State General Obligation (GO) bond package was authorized in the year 2002 that provided funding for Rural schools. The citizens of the State had approved the school construction debt reimbursement program, and approximately $728,000,000 in school construction projects have been authorized throughout the State. The Department is requesting that it be provided time to review the resulting financial impacts on the State and develop a report that would convey to Legislators what the anticipated annual debt would be under this program. $84,000,000 in debt expenses would be included in the FY 06 budget with the anticipation for that number increasing were additional bonds sold. Senator Dyson appreciated the Department's desire to undertake the study. He asked regarding any specific school construction projects that could be affected by this legislation. 10:51:22 AM Mr. Jeans identified that the Mat-Su School District would have some needs. The Anchorage School district has also identified needs they would like to present to their voters. The Department would appreciate being able to review "the effectiveness" of that program before an extension occurred. 10:51:57 AM Senator Olson asked whether this bill would affect school construction in Bush Alaska. 10:52:13 AM Mr. Jeans clarified that the debt reimbursement program "is only available to municipal school districts" such as the Northwest Arctic Borough and the North Slope Borough. Areas such as the Lower Kuskokwim/Lower Yukon school areas would not be affected by it. 10:52:32 AM Senator Olson asked therefore for an example of how this legislation would affect the Northwest Arctic Borough and the North Slope Borough. Mr. Jeans responded that those Boroughs could develop a proposal for local voter approval. A proposal approved by the local voters would either qualify for the 70-percent or 60-percent reimbursement. He pointed out that this legislation, like the legislation that was passed in the year 2002, would not impose "any limits by region." 10:53:16 AM Co-Chair Wilken recalled that either a provision in SB 155-APPROP: SCHOOLS/UNIV/VIROLOGY LAB/MUSEUM or the FY 06 Capital Budget bill, would allow projects in organized Alaska to be funded at a 70- percent State/30-percent local funding ratio "under the grant provision". Therefore, he understood that this legislation would be required in order to conduct a community vote on local school projects in, for instance, the Mat-Su Borough or the Fairbanks North Star Borough. Mr. Jeans asked for further clarification of the question. Co-Chair Wilken expressed that a provision of SB 155 or in the Capital Budget would apply to named projects in organized Alaska. Those projects would be included in the list of the traditional 70/30 reimbursement funding mechanism. Therefore absent this legislation, an organized borough would be unable to develop a proposal for local voter consideration. 10:54:42 AM Mr. Jeans replied, "that is not correct". The grants specified in SB 46-BUDGET: CAPITAL & OTHER/ BRF are grant projects through the Department of Education and Early Development. The projects and their funding levels as identified in that bill "are the State's share at 70-percent." The municipality would be responsible for "a 30-percent local match on top of that". 10:55:11 AM Co-Chair Wilken asked regarding the procedure were the municipality to desire to fund their 30-percent match with bond money; specifically whether this legislation would be required in order to conduct a Statewide vote. Further Committee discussion in this regard ensued. In order to clarify the funding mechanism at hand, Mr. Jeans clarified that there are two different programs. One is grant program in which "the Legislature lists out the grant projects in the State's share". AS 14.11.008 specifies the participating share for that grant program. The program being discussed in this legislation refers to AS 14.11.100, which is the debt reimbursement program. Were this legislation adopted, "then a municipality would take before their voters the entire project, issue bonds for the entire project, and the State would either reimburse them at 70 or 60 percent, depending on the individual project's legibility." This funding mechanism "is quite a bit different than the grant program." Co-Chair Green opined that the programs "are similar but different." Mr. Jeans replied that they "are similar in terms of what the participating share is." Co-Chair Green acknowledged. Mr. Jeans continued that under the grant program, "the State is providing the 70-percent up front". Co-Chair Green surmised therefore that the school district would not be required to expend money and then get reimbursed. Mr. Jeans affirmed. 10:57:02 AM Co-Chair Green understood that "the authority to go to bond is implied in the Capital bill". 10:57:14 AM Mr. Jeans responded that in the capital bill, municipalities could bond for their local share. "Municipalities could bond for 100- percent of a project right now; it would simply not be reimbursable by the State at any rate." 10:57:30 AM Co-Chair Wilken therefore, questioned the need to further this legislation prior to the Department's report being developed, since $120,000,000 in school construction needs would be included in SB 155 or in the capital budget. He understood that that amount of money would address districts' needs. 10:57:53 AM Co-Chair Green responded that those bills would provide less than one-half of the Mat-Su School District's needs. However, she allowed that, based on increased enrollment, the Mat-Su District might be alone in their situation. Other districts might desire this funding mechanism and might be eligible, depending on what is passed or offered. Were the capital bill in its current form to pass, it would provide funding for the next year, but not for the Mat-Su District's anticipated future needs. Again, she qualified that the Mat-Su District might be unique in its population growth. She asked the Department to elaborate on this issue. 10:58:53 AM Mr. Jeans expressed that the population of "the Mat-Su Borough is growing at tremendous rate" and its schools "are operating at capacity". However, some schools in the State are currently operating at 200 percent capacity. Co-Chair Green understood therefore that other schools have similar needs. Mr. Jeans affirmed. 10:59:21 AM Senator Hoffman recalled the original legislation as being a "very contentious issue." The crux of that dialogue is that, while areas such as the Mat-Su Valley are experiencing tremendous growth, the Legislature acts on behalf of the whole State. Without Legislative action, nothing would occur in regards to the unorganized areas of the State. All areas of the State should benefit from the oil and gas revenues generated from the North Slope; quality education opportunities should be provided to children under the age of 17 in all areas of the State. This was an issue during the debate on the original legislation. A list for school construction projects has been developed that amounts to approximately $527,000,000. In the past, a percentage of schools would be built in Rural areas of the State. A formula must be developed that would consider the education needs of the entire State. He suggested that the Department address this issue in its report. An amendment was discussed during the development of the original authorization that addressed this issue. Senator Hoffman stated that the advent of a Gas Pipeline would result in more and more school needs throughout the State. This issue must be discussed and resolved on a long term basis rather than being "piecemealed" in legislation such as this. The majority of the Rural projects addressed in the Capital Budget are major maintenance needs rather than new school construction needs. 11:02:42 AM Senator Hoffman asked therefore whether the scope of this legislation could be limited to specifically address the needs of the Mat-Su Valley. 11:04:01 AM Co-Chair Green agreed that a "valid discussion" must be had. She noted that the FY 06 Capital budget is totally different from previous budgets in regards to its "huge investment Statewide". 11:04:34 AM Co-Chair Wilken provided an overview of pending school construction legislation: approximately $260,000,000 would be specified through either SB 155 or the Capital Budget including $118,000,000 for school construction and $141,000,000 for major maintenance. $69,900,000 would be provided to "people that don't pay a nickel for their schools"; organized Alaska would be provided $72,000,000. He doubted that a formula could be developed that would be any fairer as the funding is fairly evenly divided. A formula would be a matter of importance only when everyone in all parts of the State contributed equally to education. That should be a consideration. 11:06:22 AM KIM FLOYD, Representative, Mat-Su School District, testified via teleconference from an offnet site and voiced appreciation for the Committee's discussion on this legislation. Continuing, she spoke to the fact that the Mat-Su District is experiencing "unprecedented enrollment growth" and is the fastest growing school district in the State. This growth is projected to continue. State demographers' projections were incorrect and "have been revised to reflect reality." Currently all classrooms are overcrowded and portable classrooms are being utilized. 28 portables in addition to the current 48 would be required to meet enrollment needs next year. However, the District has only enough funding to construct five. While she acknowledged the Department's desire to complete their report, she characterized the District as being "out of time". While the District has compiled a 20-year plan that is updated annually, its construction needs are a "day late and a dollar short". Voters understand the situation and would "support critically essential projects". She asked that the Committee approve the extension of the bond debt reimbursement program. She also spoke in support of SB 155. The District is considering every opportunity thought which to address its student growth needs. Co-Chair Green ordered the bill HELD in Committee. Co-Chair Green announced that the Committee would reconvene at approximately 4:00 PM in order to address amendments to SB 46. Other legislation would also be considered. RECESS TO CALL OF THE CHAIR 11:10:03 AM / 4:26:40 PM