HOUSE FINANCE COMMITTEE January 21, 1993 1:32 p.m. TAPE HFC 93-6, Side 1, #000 - end. TAPE HFC 93-7, Side 1, #000 - end. TAPE HFC 93-7, Side 2, #000 - #555. CALL TO ORDER Co-Chair Larson called the House Finance Committee to order at 1:32 p.m. PRESENT Co-Chair Larson Representative Hoffman Vice-Chair Hanley Representative Martin Representative Brown Representative Navarre Representative Foster Representative Parnell Representative Grussendorf Representative Therriault Co-Chair MacLean was absent from the meeting. ALSO PRESENT Representative Ulmer; Representative Bundy; Representative Brice; Representative Davies; Jerry Covey, Commissioner, Department of Education; Mike Maher, Deputy Commissioner, Department of Education; Allan Barnes, Executive Director, Postsecondary Education Commission; Gary Bader, Director, Administrative Services, Department of Education; Duane Guiley, Finance Director Department of Education; Jerome Komisar, President, University of Alaska; Wendy Redman, Vice President, University of Alaska; Brian Rogers, Vice President, University of Alaska; Marsha Hubbard, Director of Budget, University of Alaska; Marshall Lind, Chancellor, University of Alaska Southeast; Joan Wadlow, Chancellor, University of Alaska Fairbanks; Donald Behrend, Chancellor, University of Alaska Anchorage. SUMMARY INFORMATION AGENCY BUDGET OVERVIEWS: DEPARTMENT OF EDUCATION UNIVERSITY OF ALASKA hb55# HB 55 FY 94 OPERATING BUDGET & LOAN PROGRAMS JERRY COVEY, COMMISSIONER, DEPARTMENT OF EDUCATION provided members with an overview of the Department of Education's budget (Attachment 1). He reviewed functions of the Department of Education as listed on page 1, Attachment 1. He observed that the Department has 380 employees. 1 Commissioner Covey discussed issues that the Department has focused on during the past year. He noted that the Alaska 2000 Education Initiative has been a major focus. He emphasized that the Initiative has been crafted to eliminate controversy. The Department has attempted to gain a broad support for the Initiative. During FY 93 the Department surveyed school districts to determine their needs, cut travel by 25 percent, reviewed the Alaska report card process and made significant progress on the chart of account issue. Commissioner Covey emphasized that the State of Alaska has taken a leadership role in fulfilling the mandates of the Americans with Disabilities Act. Commissioner Covey stated that the Department has been working on setting standards for student performance as part of the Alaska 2000 Education Initiative. He emphasized the importance of performance standards. He assured members that standards will reflect the cultural and ethnic diversity of students. He asserted that Alaskan children can achieve world class standards. Commissioner Covey highlighted the Department of Education's FY 94 budget. He noted that the FY 94 budget is below the FY 93 authorized level by $6.8 million dollars, including Postsecondary Education. Under the current foundation formula there will be a $18.6 million dollar increase to cover expanded enrollment. There is a 3 percent statewide growth in student enrollment. Impact Aid will increase by $1.2 million dollars. The Department projects the need for a $6.4 million dollar supplement. School debt retirement is down by $28 million dollars. Pupil transportation is down $2.6 million dollars. Funding for pupil transportation will require proration of transportation costs to districts. There is an increase of $25.0 thousand dollars for the Professional Teaching Practices Commission to address increased legal fees. Commissioner Covey reviewed the legislative package for the Department of Education. Commissioner Cover discussed an omnibus bill containing five components. The components are: Phase-in to a 200 day school year, transfer funds from the Education Trust Fund to the School Improvement Fund, establish District Advisory School Boards, establish Tenure Review Committees and fund a charter school. Commissioner Covey explained that the second bill would revise the foundation formula for education. Changes will be made to the area cost differential for school funding. The gifted and talented program, and vocational education 2 will be deregulated. The Department of Education is recommending a spending cap for gifted and talented of 4.5 percent of the student enrollment. Funding would be reduced by $4.5 million dollars. This money would be added as additional funding to support Vocational Education. He explained that school districts will be held harmless under this proposal. The hold harmless proposal would quarantee school districts that their funding will not be less than the previous year. This will allow school districts to plan their school year at a minimum level. He emphasized that enrollment is increasing. Commissioner Covey continued to discuss legislative proposals affecting the foundation formula for education. The Department of Education is proposing to phase-in, over the next four years, a local contribution for each school district's operating expense. Funding communities within the foundation formula will also be addressed in the Department of Education's proposed legislation. Commissioner Covey discussed legislative proposals affecting the Department of Education's capital improvement projects. The Department is proposing to change their categories for funding. Standardized building codes for school districts and REAA's will be established. Preventive maintenance will be emphasized. ALLAN BARNES, EXECUTIVE DIRECTOR, POSTSECONDARY EDUCATION COMMISSION discussed the functions of the Commission. He noted that Commission functions include: Consumer protection, institutional authorization and the Student Loan program. The Commission also works with the Student Loan Corporation. Two members of the Postsecondary Education Commission sit on the Student Loan Corporation Board. The Corporation manages a $500 million dollar loan portfolio. Mr. Barnes noted that the Commission's FY 93 authorized budget was $8.6 million dollars including two RPL's by the Legislative Budget and Audit Committee. In 1992, the Commission handled 7,000 new loans. The loan staff ratio in 1990 was 3,000 to 1. In 1993 the loan staff ratio is 4,400 to 1. He stated that the loan default rate is approximately 7 percent annually. Over 10 years the accumlative loan default rate is approximately 12 percent. The national average for default of student loans is 20 - 22 percent. The Commission has been able to attach approximately 6,000 permanent fund dividend checks. The Commission is requesting a capital budget appropriation to improve their technology. Representative Navarre noted that pupil transportation affects the State disproportionately. He asked if the 3 Department of Education has prepared a fiscal note detailing the cost of a phase-in to a 200 day school year. Commissioner Covey replied that the Department of Education is looking at non-traditional alternatives which would reduce the cost. The current daily operating expense for K - 12 is $3 million dollars. Representative Navarre suggested that decreasing the pupil/teacher ratio is a higher funding priority than extending the school year. Representative Navarre asked if the overall reduction presented by the Department of Education included the reduction of school debt reimbursement. MIKE MAHER, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF EDUCATION clarified that the $27.8 million dollar reduction in school debt reimbursement has not been factored into the Department's overall budget request. This reduction is a non general fund decrement. There is a $15.5 million dollar net general fund increase in the Department's budget. Representative Martin expressed his concern with the number of school districts and superintendents. He noted that there are 19 superintendents with higher salaries than the Governor. Representative Martin noted that the Legislative Budget and Audit Committee concluded that consolidation of school districts could result in a $6 million dollar savings. Representative Martin discussed the Student Loan Corporation. He voiced his concern with the default rate. Mr. Barnes noted that during the mid 1980's the default rate was 24 percent. He emphasized that the current accumulative rate of default on student loans is 12 percent. He compared this to the national rate of 22 percent. Representative Hanley observed that constituents are having difficulty with their loan accounts. (Tape Change, HFC 93-7, Side 1) Mr. Barnes agreed that there have been difficulties with the accounting system. He further detailed the problems the Postsecondary Commission have encountered. He assured members that problems should be straightened out by June 30, 1993. Co-Chair Larson noted that constituents in his district have also had difficulties with the Commission's accounting system. Representative Ulmer asked the Commissioner to summarize costs associated with increased enrollment and legislation proposed by the Department of Education. Commissioner Covey 4 noted that proposed revisions to the foundation formula would result in an increase of approximately $11.6 million dollars. This includes $3.2 million dollars for single site districts. The net affect of the Governor's proposed legislation would be a $8.2 million dollar increase. The $3.2 million dollars for single site districts will not be included under the Governor's proposal. Co-Chair Larson pointed out that the Administration is proposing to transfer a portion of the Education Trust Fund to offset increased cost to the foundation formula for education. There is $8 million dollars in the Education Trust Fund. Commissioner Covey could not detail the cost of extending the school year. He emphasized that the cost of advisory boards would vary by district. Representative Ulmer clarified that the omnibus bill contains $4.5 million dollars for district grants which represents 50 percent of the Education Trust Fund. Commissioner Covey agreed and stated that increased enrollment will cost $18.6 million general fund dollars. Representative Hoffman noted the need to improve standards in rural Alaska. He emphasized the lack of access to library materials. He stressed that rural students are not entering or graduating from college in sufficient numbers. He emphasized the need to provide rural students with a "level playing field". Commissioner Covey agreed with Representative Hoffman. He added that expectations of achievement for rural students must be equal to what is expected of urban students. Representative Therriault asked if the need for additional staff in Postsecondary Education will decrease as the loan volume decreases. Mr. Barnes agreed that staff demands should decline by FY 97. Mr. Barnes expects a 30 percent increase in loans and repayment over the next three years. Approximately 7 - 9 thousand loans will be added to the portfolio. Representative Brown emphasized the need for education technology to increase quality and efficiency of education in the State of Alaska. Commissioner Covey concurred. Representative Brown noted that students cannot learn technological skills without the accompanying equipment. Co-Chair Larson announced that the House Finance Budget Subcommittee on the Department of Education will consist of Representatives Larson, James, Bunde, Willis and B. Davis. UNIVERSITY OF ALASKA JEROME KOMISAR, PRESIDENT, UNIVERSITY OF ALASKA, provided 5 members with a summary of the Board of Regents FY 94 budget request (Attachment 2). Commissioner Komisar read written testimony to the Committee (Attachment 3). Co-Chair Larson expressed his concern that the Governor's Executive Order 81 does not include funding for the Aerospace Corporation or applied research at the University of Alaska Anchorage. Representative Martin observed that the State of Alaska has been successful in attracting new students. He emphasized the need to upgrade courses. He expressed concern with public perception that the Legislature has not been generous to the University of Alaska. Representative Martin questioned Commissioner Komisar about the University of Alaska's program receipts. Commissioner Komisar assured him that program receipts are carefully monitored. He observed that an unexpected increase in tuition resulted in a request for increased program receipt authority. He interjected that the University of Alaska is continuing to seek additional federal receipts. Representative Martin discussed the University of Alaska merger. Commissioner Komisar agreed that the success of the University of Alaska merger will be discussed during subcommittee hearings. Representative Navarre asked if researchers are required to teach classes. Commissioner Komisar replied that researchers are not required to teach classes but that the majority share classroom responsibilities. Members requested further information regarding the breakdown of staff and teaching responsibilities. Representative Navarre asked Commissioner Komisar how he planned to compensate for increased health care costs. Commissioner Komisar stated that the University of Alaska is considering options. Employees may be required to pay a portion of their health care costs. The mental health policy for university employees will be revamped. A charge for dependents will be initiated. (Tape Change, HFC 93, Side 2) Representative Ulmer asked for an explanation of the University's decision to provide employees with a three percent cost-of-living increase. Commissioner Komisar observed that university employees did not receive raises for several years during the 1980's. He emphasized that during this time the University had difficulty acquiring staff. In 1989 the Board of Regents established a policy to 6 assure a minimum cost-of-living increase of 3 percent. He discussed the need to attract and retain qualified personnel. Representative Ulmer questioned the Commissioner regarding the University of Alaska Southeast's classroom capital project request. Commissioner Komisar noted that completion of the classroom would allow the campus to meet the responsibilities that it now faces. Although the Board of Regents supports the request it is not included in the Governor's CIP legislation. Representative Therriault asked if the University has been able to replace senior faculty with qualified individuals. Commissioner Komisar replied that they have been able to fill positions with qualified persons. He noted that the academic market place is advantageous to the University at the present time. Representative Bundy agreed that there is more talent than positions available. He suggested that more emphasize be placed on hiring teachers. Commissioner Komisar discussed faculty turnover. Representative Parnell relayed concerns by students pertaining to the University's accreditation. He noted that the full-time to part-time teaching ratio is low. Commissioner Komisar assured him that the University's accreditation is not threatened. He agreed that the number of full-time teachers needs to be increased. He stressed the importance of expanding course selection. He suggested that courses may be shared between campuses by utilizing available technology. DONALD BEHREND, CHANCELLOR, UNIVERSITY OF ALASKA ANCHORAGE (UAA) clarified that 68 percent of the faculty at UAA are part-time. Thirty-two percent of UAA teachers are full- time. He noted that this represents a reversal of most secondary education institutions. He emphasized that UAA is seeking $3.5 million dollars to hire additional faculty. This increase would result in a two percent increase in full-time positions. Co-Chair Larson noted that the FY 93 cost-of-living increase was not included in the University of Alaska's budget. Commissioner Komisar clarified that the FY 93 increase was aurgumented by a raise in tuition. He interjected that a FY 94 increase would have to be accompanied by additional general fund support. Representative Hoffman expressed concern that rural campuses have not been included in the decision making process. 7 Commissioner Komisar felt that rural campuses had been involved in the budget process. JOAN WADLOW, CHANCELLOR, UNIVERSITY OF ALASKA FAIRBANKS further discussed the extended budget process and involvement of rural campuses. She emphasized that the University relies on criticism by students regarding their needs. Representative Foster echoed frustration felt by the North-Northwest campus, in Nome, regarding the attention given to rural campuses. Co-Chair Larson asked for information regarding sponsored programs. Commissioner Komisar noted that sponsored programs are paid for by groups other than the State. Sponsored programs are not paid for by general funds. They are self supporting. Co-Chair Larson asked if the University of Alaska will be seeking bonds to cover deferred maintenance through the Alaska State Housing Authority. Commissioner Komisar stated that the potential for bonding is still being discussed. The bond would be paid off over a period of time through general fund allocations in capital projects legislation. There would be an obligation to the General Fund. Co-Chair Larson noted that future legislatures would be obligated. Representative Brown asked what is the increase to the University of Alaska's budget. Commissioner Komisar stated that there is a $5 million net general fund dollar increase. MARSHA HUBBARD, DIRECTOR OF FINANCE, UNIVERSITY OF ALASKA referred to page 2, Attachment 2. She observed that the Governor did not select which projects would be funded. He approved all of the $20 million dollar requests. Then gave an unallocated reduction of $16 million dollars. There is a net increase of $4.981.0 million general fund dollars. The Board of Regents has not determined how the increase will be spent. She noted that other funding sources are also shown on page 2, Attachment 2. Representative Brown noted that a ten percent increase is expected in tuition. She asked how the University of Alaska compares to other institutions. Commissioner Komisar noted that the University of Alaska is in the middle nationally. Members discussed whether projects should be prioritized by the Board of Regents or the Legislature. Members did not reach a consensus. Co-Chair Larson announced that the House Finance Subcommittee on the University of Alaska consists of Representatives Martin, Bunde, Phillips, Davies and Ulmer. 8 ADJOURNMENT The meeting adjourned at 3:35 p.m. 9