CSHB 203(FIN)-SPECIAL APPROP: SCHOOL DIST. COST FACTORS  REPRESENTATIVE PEGGY WILSON, sponsor, explained that CSHB 203(FIN) appropriates money to Legislative Council for a study of school district cost factors. The current formula has a design error. It tracks expenses as opposed to the actual costs of providing an education in each school district, which has resulted in flawed district cost factors. Failure to precisely measure differential costs across the state has resulted in inequitable funding. Alaska has a constitutional obligation to provide a full education to all students. The challenge inherent in this mission is to account for Alaska's diverse geography and cultural and economic conditions. CSHB 203(FIN) proposes that an independent study be done at a cost of $350,000. VICE-CHAIR LEMAN said he agrees with the need for good information and he does not believe the current geographic differentials are accurate, but he believes the information should be based on the cost of operating schools and not on incidental costs. Any study should be designed so that the data can be updated every two years, as mandated by SB 36. REPRESENTATIVE WILSON agreed it is important to design the study so that DOEED can update the information every two years. Number 447 MR. CARL ROSE, Association of Alaska School Boards (AASB), stated support for CSHB 203(FIN). He noted that many people have lingering concerns about SB 36, one being the information used to develop the foundation formula. The McDowell study of 1996 was expenditure based and many believe schools were inadequately funded at that time. The funding task force recommended no change to the foundation formula until the state could come up with empirical data on which to underwrite the change. The task force felt to change the foundation formula without a good set of indices would further exacerbate the problem. The AASB identified the need for such a study in its A+ document. He pointed out the AASB has a dues formula that contains factors so that during times of financial prosperity, dues can be reduced and vice versa. He suggested that using 2002 as the timeframe to complete the product is too short and will produce a poor product. He would like to see the study in place very soon and if the study lasted until 2003, the legislature would have another year's data to consider. He stated the need for this bill is more important since SB 36 is in place. The district cost factors used now are very questionable MR. DARROLL HARGRAVES, Council of School Administrators, stated support for CSHB 203(FIN) because of the low confidence level in the current chart of accounts set in statute, which he believes is inadequate. MR. EDDY JEANS, School Finance Manager, DOEED, stated support for CSHB 203(HES). DOEED believes a study needs to be done and completed by January 15, 2003 instead of 2002. Requiring the study to be done in a very compressed time frame will produce a product that does not serve the state's needs. He requested that CSHB 203(FIN) be amended to change the date from 2002 to 2003. He stated he spoke with Representative Wilson about that amendment. She would like to do a little bit of research before supporting it. VICE-CHAIR LEMAN suggested requiring a draft study to be completed by January 1, 2002 and to then have a comment period. MR. JEANS said DOEED requested amended language on the House side that would have required Legislative Council to work in consultation with DOEED to develop the contract for the study. DOEED intends to work with the school districts to make sure they buy into the product before it goes out for bid. That way, DOEED will be asking the contractor to measure the items that the school districts feel are truly driving the difference in costs between districts. He said he doesn't believe a good request for proposals (RFP) could be crafted in less than two months and that development needs to be done on the front end. VICE-CHAIR LEMAN agreed. He asked Mr. Jeans if he is satisfied with the information the state is collecting on the costs of running school districts and whether DOEED has the ability to compare districts from that information. MR. JEANS stated that two additional positions were approved under SB 36. He now has two internal auditors working for DOEED that review school district audited financial statements on an annual basis. DOEED has also done an extensive review and revision of the uniform chart of accounts adopted by the state board of education in December. That chart of accounts will take effect in July so it will be at least one year before the results are in. He believes the new chart of accounts will get the expenditure data in line. DOEED is not suggesting that this cost model be developed based on audited financial statements for expenditures because districts spend what they get. If they are not getting sufficient funds, they must cut in certain areas. DOEED wants to look at the actual costs of providing an education in the various communities. Fuel costs and consumption varies greatly among districts. The contractor needs to identify those indices that DOEED can update regularly. VICE-CHAIR LEMAN said he agrees but would be careful about interpreting too much from the costs unless a common base can be found to determine comparable deliveries in communities. He announced he would hold CSHB 203(FIN) and adjourned the meeting at 3:32 p.m.