SB 36 PUBLIC SCHOOL FUNDING  Number 001 CHAIRMAN WILKEN called the Senate Health, Education & Social Services Committee (HES) to order at 9:05 a.m. and introduced CSSB 36(HES) as the first order of business. JOHN CYR , President of NEA-AK, informed the committee that he was testifying from San Diego, California. Mr. Cyr informed the committee of the following demographics: 34 percent of Alaskans are children 15 children commit suicide every year 85 children die of injury, homicide, suicide, unintentional injury 125 babies die before reaching age one 160 babies are born with fetal alcohol syndrome 580 babies are born at low birth weight 600 children are admitted for inpatient psychiatric care 915 babies are born to mothers with less than 12 years of education 1,235 babies are born to teenager mothers 1,450 children will be arrested for felony offenses more than 2,000 children will drop out of school 3,500 children are reported as runaways 3,700 children are abused or neglected 10,500 preschoolers live below the poverty level almost 25,000 children receive AFDC Mr. Cyr said that all these children are in Alaska's schools. What is done with the foundation formula has a direct impact on those children. In the first year Alaska was a state, 44 percent of the budget went towards education. By 1970, that amount had dropped to 35 percent and in 1991 that was 17 percent. The foundation was $60,000 in 1987-88, then in 1992 the foundation unit increased to $61,000. Mr. Cyr noted that in 1996, Alaska ranked last in resource allocation towards education for all 50 states. Alaska also ranked last in aggregate salary for education employees after being inflation adjusted. There has been a 10.9 percent loss in real buying power since 1985/86. In the classroom, that results in larger class sizes. Mr. Cyr informed that committee that in his last year at Wasilla High School, he had 168 children in 5 classes. One cannot deliver the program needs with that many children. Alaska ranks 49 in the number of advanced placement classes offered in the U.S. Alaska pays less attention to marginal students. Alaskan schools have inadequate technology. Schools do not have academic or vocational counseling at the elementary level, there is one counselor at most middle schools. Mr. Cyr believed that the children of Alaska are being done a great disservice. Mr. Cyr turned to the foundation formula. He asked if the numbers on the reallocation of dollars in each of the five years were available. CHAIRMAN WILKEN said that those numbers are being developed and should be available today or the first of the week. Chairman Wilken reminded Mr. Cyr that in years three through five, the reallocation becomes a function of the ACD study. JOHN CYR calculated that over the first two years of the program, Anchorage gains a little over $16 million, Fairbanks gains $5.1 million, Mat-Su gains $69,000 and Kenai and Juneau pick up a little less than $1 million. Mr. Cyr asked if those numbers are correct. CHAIRMAN WILKEN did not know and suggested that Mr. Cyr provide the committee with his concerns about CSSB 36(HES). JOHN CYR said that the equalization of funding must be based on programs and not the equalization of dollars. In fact rural dollars are being removed from rural children, for the short term benefits of urban districts. NEA-AK believes that to be a mistake. Funding must also reflect the needs of students in single site districts. Mr. Cyr stated that it was unacceptable for the students of single site districts to be left political hostage every year. Full funding must come with student growth which is unprecedented in Alaska. Some mechanism must be built into the foundation formula for increased renovation, research grants, incentive grants, new programs for violent students and parental involvement technology. Mr. Cyr was pleased that pupil transportation was included as well as the area cost differential study. Mr. Cyr noted that Alaska has experienced a 30 percent loss in buying power, inflation proofing is necessary. Oversight and auditing positions are missing from this proposal; those positions would assure that education dollars are being spent on education. Number 199 SENATOR WARD believed that Mr. Cyr indicated that NEA-AK was opposed to CSSB 36(HES). Is NEA-AK opposed to or in favor of the Governor's proposal or Senator Randy Phillip's proposal? Senator Ward asked if Mr. Cyr had his own proposal. JOHN CYR said that NEA-AK was not in opposition to CSSB 36(HES) or SB 146 in its entirety. All of the proposals have some positive aspects. Mr. Cyr informed the committee that NEA-AK liked the incentive grants and Quality Schools Initiative in SB 85. The area cost differential study is good. Mr. Cyr suggested that the best of each be packaged as one bill. In further response to Senator Ward, Mr. Cyr clarified that NEA-AK supports a number of items in this bill and others as well as opposed to some of the provisions. SENATOR WARD thought that Mr. Cyr indicated that the communities of Anchorage, Fairbanks, Juneau, and Kenai were to receive more than a fair share; is that correct? JOHN CYR said that it is a mistake to take money from rural children. SENATOR WARD inquired as to how much those numbers should be reduced for the various communities Mr. Cyr cited. Does NEA-AK want those allocations to be reduced? JOHN CYR replied, no. SENATOR WARD said that it would be helpful to have suggestions regarding the allocations, if Mr. Cyr had such. JOHN CYR said it would be easy to determine the money necessary to fund education across the state. Number 245 SENATOR LEMAN noted that Mr. Cyr supported the incentive grants for schools while in the past incentive grants for teachers have been opposed by NEA-AK. Senator Leman asked if this was a philosophical shift towards his view that teachers should be paid on performance instead of encouraging mediocrity. JOHN CYR did not know that mediocrity was being encouraged. Mr. Cyr said that he would be happy to review any concrete proposals regarding incentive grants for teachers with Senator Leman. SENATOR LEMAN said that in the past, NEA-AK's opposition has been rooted in who actually decides who receives the grant. Senator Leman believed that there was merit for incentive grants for schools. Therefore, if an incentive grant is appropriate for schools it should also be for teachers. Senator Leman urged Mr. Cyr to think about this issue. CHAIRMAN WILKEN informed the committee that he had ran some numbers in order to get a sense of the growth of the formula. Those numbers say that the formula has grown 50.2 percent in actual dollars and the ADM has increased 23 percent during that same period. Therefore, inflation proofing has been built in and the state has kept up with inflation proofing the formula. With regards to Mr. Cyr's comments about delivery by program, how would that be accomplished? JOHN CYR believed that most could agree on the general areas of what it takes to have a quality school which makes it possible to determine the program needs of schools. Mr. Cyr informed the committee that in his last years teaching, his classroom supplies consisted of a box of chalk. Mr. Cyr suggested that the costs of supplies should be reviewed in order to deliver a program. CHAIRMAN WILKEN pointed out that the ACD study in the bill would review the cost of running a school, not a school district. JOHN CYR said that NEA-AK was on board with that. Mr. Cyr inquired as to what happens to the children when a school with less than 10 students is closed. How many small schools would be closed? CHAIRMAN WILKEN said that very few, if any schools would close, but there are centralized correspondence programs within Alaska. Number 311 AL WEINBERG , representing the Single Site School District Consortium, appreciated the goals set forth for the revision of the foundation program. Mr. Weinberg was not convinced that this proposal was any simpler. Equity is extremely important, but unfortunately there is no mention that school districts be provided adequate funding. Mr. Weinberg noted that a purpose statement of the foundation formula as well as the proposal before the committee is that the foundation formula provide an equitable level of educational opportunities. The proposed formula takes portions of other proposed formulas which means that those components may not produce the same result, especially with equity. Mr. Weinberg noted that the adverse impacts occur to single site districts, REAAs, and rural boroughs. In the second year, 15 single sites would face reduced funding as would 10 REAAs and 5 rural boroughs. During this same time, the winner districts would receive an additional $25 million while the losers would loss about $14 million. Of the $25 million going to the winner districts, $15 million would be given to Anchorage and Fairbanks. Mr. Weinberg stressed that there is no assurance that the additional $15 million would benefit the children in those districts because the local district could reduce its local contribution. Mr. Weinberg believed that the 20 percent supplemental needs factor was simpler than the existing categorical funding, however it is not necessarily more equitable. For instance, the current percentage statewide in special education enrollment is 14 percent while the spread ranges from 7.3 percent to 38.9 percent. The spread is even greater for bilingual education. Mr. Weinberg pointed out that the 20 percent supplemental needs factor would not eliminate the federal and state requirements that school districts identify special needs students and provide appropriate programs for those students. The concern is that this may adversely effect equity for the sake of simplicity. Mr. Weinberg applauded the area cost differential study. The proposed study is a bit more extensive, addressing the size factor and the single site factor. Mr. Weinberg noted that the Legislature has not accepted the results of past studies. The notion that the area cost differential be reviewed by funding community is meritorious, however the numbers to be in effect prior to the study are flawed. For example, Bristol Bay and Wales have the same area cost differential as do Bethel and Lyon Village. Bethel is a major river port and airport while Lyon Village is one of the most remote villages in Alaska. Number 401 With regard to the REAA tax, this is the most regressive tax and is being imposed in may instances on the poorest in Alaska. Mr. Weinberg did not have a problem with taxpayer equity in Alaska, however this proposal does not provide such taxpayer equity. In conclusion, Mr. Weinberg hoped that the focus remain on the children and adequate and equitable funding for all children regardless of geographic location, community wealth, or political influence. SENATOR LEMAN understood Mr. Weinberg's testimony to be that the proposal before the committee was not equitable. Senator Leman asked Mr. Weinberg if he believed that everyone should participate in some manner in funding a local share. AL WEINBERG did not have a problem with that concept. That is not occurring now in the municipal districts, but there is no contribution from REAAs now. SENATOR LEMAN expressed interest in Mr. Weinberg's proposal. AL WEINBERG identified the following as more equitable solutions: a statewide property tax including REAAs as well as municipal districts, a statewide income tax applied to all earners in Alaska, and a flat school tax on all earners in Alaska. By singling out those in REAAs, the state would be requiring a tax on those citizens while not requiring a tax on citizens in municipal districts for the support of schools. Mr. Weinberg recognized that many municipal districts do levy property taxes on property owners for the support of schools, but not all municipal districts do. SENATOR LEMAN pointed out that all municipal districts do participate with a local share in some way. Senator Leman understood Mr. Weinberg to mean that in order to make the proposal before the committee less regressive the tax should apply to more people, but an income tax is regressive. AL WEINBERG clarified that an income tax based on the ability to pay is typically referred to as progressive. A tax that disproportionately takes a higher percentage of income from poor people than from wealthy people as would a head tax or a sales tax, is referred to as regressive. CHAIRMAN WILKEN inquired as to Mr. Weinberg's thoughts about a two percent tax or a tax on gross earnings that is remitted on a quarterly basis, only in REAAs. Chairman Wilken explained that the numbers show that the local contribution required from the organized areas to qualify for state need is about 15.6 percent. The REAA need is about $150 million in 1996, therefore 15 percent of that would result in about $24 million. In 1995, about $475 million in wages was paid in the REAAs outside of organized areas. If a five percent labor tax was taken on gross wages, about $23 million would result. Therefore, the REAAs would end up paying essentially what all the organized areas are paying. AL WEINBERG did not know if it was more equitable. The only way to achieve equity is to have a statewide program that impacts all in the same way. Mr. Weinberg agreed with Chairman Wilken that there are organized areas that are paying 15 percent of the local school need in order to qualify for state money and there are REAAs that do not pay anything to receive that same money. Mr. Weinberg pointed out that there are those in organized areas who pay nothing as well. For example, the Denali Borough receives revenue from a bed tax which is paid primarily by tourists and not the residents of the borough. With regard to the issue of single sites, CHAIRMAN WILKEN noted that there has been much discussion about cutting the budget and forcing consolidation. Chairman Wilken informed everyone that 13 percent of Alaska's students are in 70 percent of its school districts. Chairman Wilken hoped that the area cost differential would provide for consolidation of school districts in Alaska. There are school districts that need to be consolidated and hopefully, the study will illustrate how that can be done. Number 503 DEBORAH VOGT , Deputy Commissioner of the Department of Revenue, said that she would be discussing the tax provisions of the legislation. Ms. Vogt understood the rationale for levying a tax on a portion of Alaska. The courts will review whether the lines of distinction of a tax are rational or not. As a former Attorney General, Ms. Vogt was familiar with the standards utilized for equal protection as applied to tax. Ms. Vogt said that it was a fairly lax standard. The distinction here is for the purpose of reducing an inequity and there can be some justification for this. Ms. Vogt stated that the question would be whether this legislation provides that equity. Ms. Vogt agreed with Mr. Weinberg that the flat employment tax is a very regressive tax. Property taxes are progressive, the tax is related to the value of the property. Although a sales tax is traditionally viewed as regressive, it is related to the amount of goods and services purchased. A flat employment tax would impact those without the ability to pay more than those making better wages. Ms. Vogt noted that there are ways to address this such as the statewide property tax. The oil and gas property tax is a statewide tax with a credit for any municipal tax paid on that property which would be possible on a statewide property tax. Ms. Vogt acknowledged that such a tax would necessitate a legion of assessors, furthermore each municipality does not determine its contribution in the same way. Ms. Vogt said that a more equitable tax would be a percentage of earnings. In conclusion, Ms. Vogt mentioned that the legislation exempted nonresidents. She was unsure as to this exemption because taxes generally apply to the people who take advantage of the economic opportunity in places where the tax is levied. In response to Chairman Wilken, Ms. Vogt said that was located on page 23, line 28. CHAIRMAN WILKEN held CSSB 36(HES) and informed the committee that SB 146 would be before the committee Monday, but there would not be any public testimony.