SB 228-PUBLIC SCHOOL CONSTR/MAINTENANCE FUNDING MS. KAREN REHFELD, Director of Education Support Services for the Department of Education and Early Development, made the following comments on behalf of Commissioner Cross. SB 228 provides a funding mechanism for school construction and major maintenance projects over the next three years. With over $1 billion investment in school facilities in this state, Alaska cannot afford to neglect major maintenance needs or replacement of schools. DOE has consistently advocated for a long term stable source of funding for school construction and maintenance projects. SB 228 will address three goals. First, it will provide adequate, safe places to learn by clearing up the backlog of major maintenance projects statewide. Second, it will address the needs of both urban and rural school districts with an emphasis on addressing major maintenance projects quickly to avoid more costly construction costs in the future. Third, it will address the concerns brought forward in the Kasayulie lawsuit. The package totals $510 million, including $360 million in grants for school construction and major maintenance, and $150 million for school debt reimbursement. The projects included in the Governor's package are funded in the order in which they are ranked on the department's priority list. As proposed, all 86 projects on the current major maintenance list and 40 of the 69 new construction projects will be funded. The current list would be frozen over the next three years while these projects are underway. MS. REHFELD continued. The rationale behind the legislation is based on these goals, and sticking to the priority list and completing as many projects as possible over the next three years. Adjustments to the amount of funding for particular projects and the final listing will need to be made as a result of appeal decisions that are currently before a hearing officer as it relates to the priority list. The State Board of Education will be meeting in March to finalize the school construction and major maintenance list. As the State continues to address the issues raised in the Kasuylie case, there may be further modifications needed. Funding for major maintenance and school construction projects is critical in both rural and urban Alaska. SB 228 goes a long way toward addressing those needs. SENATOR ELTON asked if the State Board of Education will have the opportunity to change the list before it is frozen when it meets in March. MS. REHFELD explained school districts may appeal DOE's annual ranking decision as it was released in December. Those appeals are then reviewed by a hearing officer. The hearing officer's decision is taken to the State Board of Education who finalizes the list. DOE plans to bring those changes back to the Legislature to incorporate into SB 228. SENATOR ELTON asked if the only anticipated changes to the list will be those modifications made under the appeal process. MS. REHFELD replied yes, any of the specifics of the funding of those projects as they are resolved by the hearing officer. SENATOR WILKEN recalled that at the December Bond Reimbursement Committee meeting, the major construction list totalled $199 million, and the major maintenance list totalled $49 million. He asked if that list was added to since December. MS. REHFELD said she did not recall the date of the December Bond Reimbursement and Grant Review Committee meeting, but DOE issued a list on December 15 that would have changed somewhat based on reconsideration of its November list. By statute, DOE is required to release its initial priority ranking by November 5. School districts then have the opportunity to ask for reconsideration. A new list is published on December 15 and it is that list the school districts would formally appeal. SENATOR WILKEN thought the Bond Reimbursement Committee met on December 9. He asked Ms. Rehfeld the total of the school construction projects in SB 228. MS. REHFELD replied the bill authorizes $360 million for all of the projects on the major maintenance list and a portion of the new construction list. SENATOR WILKEN said he would check but he recalls a total of $250 million. He asked Ms. Rehfeld to discuss the source of funds for the projects in SB 228. JIM BALDWIN, Assistant Attorney General, explained the bill contains two sources of funding for bonds that would be issued by the Alaska Housing Finance Corporation (AHFC). The first would be the authority of the State to sell the right to receive a stream of revenue generated by the tobacco settlement. That amount is expected to be $260 million. The additional $100 million would be generated from the general obligation bond capacity of AHFC. The total in the bill equals $369 million because additional amounts are needed for reserve funds and things of that nature in order to make the bonds marketable. This is within the agreement that was entered into with the Legislature in 1998. Another piece of legislation that will be tied to this will be the capital budget. DOE expects the Legislature will then go forward and appropriate for these particular projects in the capital budget. Securing the tobacco settlement stream is a device that has been used in other jurisdictions. It will be helpful to the State's position in the Kasuylie case if a large amount of financing is devoted for rural schools. This type of financing device allows for more of a concentration on rural schools. Another element of this bill provides for further authorization for the bond reimbursement program - that part of the package totals $150 million. SENATOR WILKEN suggested the Kasuylie case is not a reason for the Legislature to be considering this legislation. He asked if the Administration is doing anything to change the system so that the REAAs can help participate in the construction of their schools. MS. REHFELD said there is no proposal at this point that provides for a bond capacity or some other mechanism for REAAs to participate. SENATOR WILKEN asked if SB 228 contains a provision to develop a prototype school or school program. ASSISTANT ATTORNEY GENERAL BALDWIN said nothing in SB 228 expressly provides for prototype schools but nothing prohibits them. SENATOR WILKEN asked if DOE would object if such a provision was added. ASSISTANT ATTORNEY GENERAL BALDWIN said from the perspective of the lawsuit, he does not know whether that might complicate things. TAPE 00-8, SIDE B MS. REHFELD replied that has been an issue that the Bond Reimbursement and Grant Review Committee has been looking at and she is not sure that it has actually come up with an approach that captures all of the aspects of dealing with prototype schools. CHAIRMAN MILLER indicated a number of schools on the project list are within organized boroughs and asked if the amount included in the bill is the state's approximately 70 percent share. MS. REHFELD said if the Chairman is speaking specifically to the grant projects that are included in the proposal, all school districts have a required participating share. CHAIRMAN MILLER asked if these projects are funded with 70 percent by the State. MS. REHFELD said yes, or whatever the participation level is. SENATOR ELTON asked Assistant Attorney General Baldwin whether he feels reasonably assured that this approach will satisfy the plaintiffs. ASSISTANT ATTORNEY GENERAL BALDWIN said he is comfortable that the amount of $360 million to address the projects included in the bill is highly likely to resolve the problems in the claims in the case, whether it be by settlement or whether it be by making the case moot. He said he respects Senator Wilken's view on the Kasuylie case, and that view is shared by the Governor, but in the discussions he has had with the plaintiffs, they are in general agreement on the dollar amount and on the projects. There is an ongoing discussion, however on how much will be spent on each project. SENATOR ELTON said he thought the amounts were settled and equalled 100 percent of the new construction and major maintenance. MS. REHFELD said in the Governor's proposal, several of the projects from the December 15 meeting that were initially recommended to be phased are recommended to be fully funded. To the extent that one would be able to go farther down the list if the projects were phased or, conversely, try to fully construct as many projects as possible, that would affect how far down the list one can go. Because the proposal would freeze the list for three years, DOE believes it is better to get as many projects completed as possible during that three year period. Under this proposal, there would be nine projects in year three that would be phased. After the first year, those projects would receive additional points toward ranking because the planning and design phase would be complete. The goal is to try and complete as many projects as possible. MS. PAT WEAVER, a PTA member from Mat-Su, stated support for SB 228. She supports funding the statewide projects from tobacco settlement money, and she believes students need clean, safe water. She also supports debt reimbursement of 70 percent. SB 228 is a "no frills" bill. MR. BOB DICKENS, Bering Straits School District, commented that SB 228 is a long-awaited development in addressing the public school construction in rural and urban Alaska. The biggest problem he has seen over the last seven or eight years is that there has been no consistency in the funding, especially in rural Alaska. SB 228 is a big step in that direction. In the long run, it will give rural residents the hope they have been looking for during the past seven or eight years. SENATOR WILKEN congratulated Mr. Dickens for keeping the school in Golovin in first class shape. He pointed out that the Bering Straits School District has three schools on the list. He asked if that school district would be amenable to having three prototype schools constructed in those three villages. MR. DICKENS noted that five schools would be constructed in the Bering Straits School District over a three year period: Golovin, Elim, White Mountain, Koyuk, and Teller. Regarding prototype schools, Bering Straits School District is more in favor of standardization of equipment and mechanical systems because each location has a unique terrain. CHAIRMAN MILLER thanked all participants for testifying on SB 228 and noted his intent to take more testimony next Wednesday and to pass the bill from committee at that time.