HOUSE FINANCE COMMITTEE HOUSE HEALTH, EDUCATION & SOCIAL SERVICES COMMITTEE HOUSE SPECIAL COMMITTEE ON EDUCATION February 13, 2003 11:35 A.M. TAPE HFC 03 - 19, Side A TAPE HFC 03 - 19, Side B CALL TO ORDER Co-Chair Harris called the House Finance Committee meeting to order at 11:35 A.M. MEMBERS PRESENT HOUSE FINANCE COMMITTEE MEMBERS Representative John Harris, Co-Chair Representative Bill Williams, Co-Chair Representative Kevin Meyer, Vice-Chair Representative Eric Croft Representative Richard Foster Representative Mike Hawker Representative Gary Stevens Representative Bill Stoltze Representative Jim Whitaker HOUSE HEALTH, EDUCATION & SOCIAL SERVICES COMMITTEE Representative Peggy Wilson Representative Carl Gatto Representative Sharon Cissna Representative Cheryll Heinze Representative Mary Kapsner Representative Paul Seaton Representative Kelly Wolf HOUSE SPECIAL COMMITTEE ON EDUCATION Representative Carl Gatto Representative Paul Seaton Representative Les Gara Representative Mary Kapsner Representative Peggy Wilson Representative Kelly Wolf MEMBERS ABSENT Representative Reggie Joule Representative Carl Moses Representative John Coghill ALSO PRESENT Representative David Guttenberg; Eddy Jeans, Manger, School Finance and Facilities Section, Department of Education and Early Development; PRESENT VIA TELECONFERENCE No participation on teleconference. GENERAL SUBJECT(S): JOINT WITH THE SPECIAL COMMITTEE ON EDUCATION  HOUSE HEALTH, EDUCATION & SOCIAL SERVICES  OVERVIEW: FOUNDATION FORMULA  The following overview was taken in log note format. Tapes and handouts will be on file with the House Finance Committee through the 23rd Legislative Session, contact 465- 2156. After the 23rd Legislative Session they will be available through the Legislative Library at 465-3808.   LOG SPEAKER DISCUSSION   TAPE HFC 03 - 19, SIDE A  000 Co-Chair Harris Convened the House Committee on Special Committee on Education and the House Health, Education & Social Services Committee with the House Finance Committee meeting to discuss the Department of Education & Early Development's Foundation Formula. He introduced the Special Committee on Education's Chair-Representative Carl Gatto, and the House Health, Education & Social Services Committee Chair- Representative Peggy Wilson.  057 EDDY JEANS, MANGER, Provided Committee members with (2) SCHOOL FINANCE AND handouts. (Copies on File). He FACILITIES SECTION, referenced the schedule attached at the DEPARTMENT OF end of document #1. He encouraged EDUCATION AND EARLY Committee members to ask questions during DEVELOPMENT the overview. He requested that the presentation be kept to just the foundation funding program as it is today without discussing the changes over time.  239 Mr. Jeans Commented that current public school funding formula was adopted under SB 36 in 1998. It was implemented in 1999 and the public school funding formula was defined in AS 14.17. He stated that the overview would provide an overview of the  calculation of the Average Daily Membership (ADM) and the calculation of basic need and the components of basic need regarding who pays, state, local or federal.  352 Mr. Jeans The ADM is the number of students enrolled during the 20-day count period that ends on the fourth Friday in October. The reports are due into the Department within 2-weeks of the 20-day count period.  422 Co-Chair Harris Asked for a definition of 'enrolled in'.  430 Mr. Jeans Explained that the enrollment was based on students enrolled in the public schools and not actually attending during that 20-day period.  450 Representative Inquired how would the district 'project' Kapsner the number of students for the following year.  459 Mr. Jeans Advised that Department of Education & Early Development does not do the student projection. That is done at the local level and then provides that information to the Department.  513 Representative Questioned how would each school district Kapsner make that determination.  532 Mr. Jeans Explained that the school districts do not have a prescribed method from the Department. Some use complex formulas and some use the actual data from the current year. There is a variety of ways.  558 Representative Croft Asked if the projection matters. He asked what the formula does with the projected amount.  602 Mr. Jeans Replied that the Department prepares the State budget for the next year using that information.  621 Mr. Jeans Explained that the school districts provide their estimated count based on the information that they have available. The Department takes that information and runs it through the size adjustment tables. That information is for the purpose of developing the State budget. If there are large swings in the information provided, then the Department goes back to the district for an explanation. For the most part, the districts have a minimal change in their enrollment.  723 Representative Croft If there actual amount is different than  the projected, would it have an effect on the formula.  736 Mr. Jeans Commented that addresses how the districts are actually reimbursed. The projection provides an appropriation that is held. For the first nine months of th the current year, they receive 1/12 of their entitlement from the previous year.  810 Representative Croft Asked about the correspondence numbers and the student ADM count.  821 Mr. Jeans Replied that a correspondent student was funded at 80%.  831 Co-Chair Williams Asked about home-schooled students.  840 Mr. Jeans Could not say that the State funds home schooled students. The State does fund correspondence students.  860 Representative Commented if the projected ADM was a Wilson certain amount and the school did not have close to that amount, would that school receive less than what they had planned on.  928 Mr. Jeans Replied that under the current foundation formula, that is what would happen and they would receive less based on their actual student count.  942 Representative Asked if there was any type of protection Wilson or safeguard to help them.  958 Mr. Jeans Stated that there was no "hold harmless" provision to act as a safety guard.  1012 Representative Gara Asked if in Anchorage, Charter School students were treated as correspondence students.  1029 Mr. Jeans Replied that would depend in what program that they were enrolled in. Not all the charter schools are home school based programs.  1042 Representative Gara Is it left up to the Department to 'make a call' to determine if the program is run like a correspondence or home school program.  1053 Mr. Jeans Replied that was correct.  1100 Mr. Jeans Addressed who qualifies as a student. The child must be six years old before th August 15 and/or is under the age of 20- years old. The Special Education Programs must serve students from the ages of 3 through 22 years old.  1126 Mr. Jeans Noted that there are five steps in adjusting the school districts average daily membership. · Look at the school and run it through the school size adjustment  table · Apply the district cost factor · Increase that number by 20% for special needs funding · Intensive service counts for the severely multi handicapped children · District correspondence count for the districts adjusted ADM  1215 Mr. Jeans School size adjustment. For each school in the district subtract from the ADM all correspondence counts. Adjust the remaining ADM of each school using the school size factor table. · A community with an ADM under 10: Added to the smallest school with an ADM greater than 10; · A community with an ADM from 10-100: Grades K-12 ADM combined and adjusted once, adjusted as one school; · A community with an ADM from 101- 425: ADM for grades K-6 and 7-12 are adjusted separately; adjusted as two schools; · A community with an ADM greater than 425: Each facility administered as one school, counted as one school, ADM is adjusted as one school; Alternative schools with an ADM of less than 200 combined are adjusted with the school with the greatest ADM in the district; If an alternative school ADM is greater than 200, the ADM will be adjusted once; A charter school with an ADM of 150 or greater will be adjusted once. · Using the proper formula from the school size factor table, calculate the adjusted ADM for each school.  1325 Representative Asked how the special needs factor would Kapsner apply to the 20% block factor.  1345 Mr. Jeans Advised that the special needs factor is the 20% block funding.  1358 Representative Asked what would happen for a district Kapsner that currently has a much higher need.  1404 Mr. Jeans Emphasized that they would only be funded at 20% regardless of what the special needs in that district are.  1414 Representative Gatto Asked about the ADM's slide. He asked what would happen in a community that had  multiple schools with ADM's under 100 or over 500. He asked if the referenced was to the community or each school in the community.  1445 Mr. Jeans Replied that the first thing that the Department looks at is the overall student population in that community. That provides the information regarding how many schools will be run through that size adjustment table. A community could actually have a number of schools, but if they have less than 425 students in that community, that will be run through the size adjustment table.  1526 Representative Gatto Commented that it would be like a virtual school for the purposes of allocating funding.  1536 Representative If the district has 3 schools, they would Wilson only get paid for 2, and if they have one school, they get paid for 2.  1558 Mr. Jeans Replied that the foundation entitlement is calculated as if they have 2.  1604 Representative Clarified that if there were less than Wilson 425 students, and they had 3 schools, they would only be paid for 2 schools.  1620 Representative Croft Asked if the formula was attempting to encourage schools in that range.  1643 Mr. Jeans Responded that the breaking points exist, because when the foundation program was rewritten as SB 36, there were a number of decisions that had been made in the past regarding the structuring of schools. To insure that the districts were getting an appropriate level of funding, the intent was not to penalize districts for passing decisions of how the students were being 'housed'. Consequently, the range factor was put into place to assist driving revenue.  1734 Representative Asked what would happen in a school Wilson system in which there are 3 schools, and that they are all small enough that you could not get them into 2 schools.  1748 Mr. Jeans Replied that they would need to operate within their means.  1801 Representative Commented that the school would be Wilson basically 'stuck'.  1807 Mr. Jeans Responded that in some of the communities, there were larger student populations, which required a greater number of schools. As community's student population declines, the school  district needs to make decisions if they need to operate that many schools. When the community falls within the range of 101-425, the State has made it clear that they will fund that district as if it were operating 2 schools.  1901 Representative Asked what would happen if they cannot do Wilson that.  1910 Mr. Jeans Acknowledged that was correct.  1921 Mr. Jeans Noted that they had taken the Nome City school district to base the presented calculations. He noted that they reported that they have an elementary population of 425 students; high school with 305; charter school currently serving 42 students; and the Nome Youth facility that has 12 students. The district has over the 425 minimum number. Each school will be funded through the size adjustment table with the exception of the charter school.  2011 Representative Croft Asked how the Department would deal with the youth facility.  2020 Mr. Jeans The Department decided to fund youth facilities around the State as separate sites because those sites are operating on a year-round basis.  2043 Representative Asked in that instance, would they get Wilson paid for three buildings.  2056 Mr. Jeans Replied that was correct.  2101 Mr. Jeans He added that the alternative school would be added to the school with the largest ADM.  2124 Mr. Jeans He referenced the school size adjustment statute. Using those numbers, the adjusted ADM school size would be 514.  2215 Co-Chair Harris Asked why the extra students were only worth 92% funding.  2231 Mr. Jeans Replied that was correct. The purpose is that as you move through the scale, there is a benefit of an economy of scales.  2236 Co-Chair Harris He noted that over 400 students, the students would be taught 'cheaper'. Mr. Jeans noted that once you get over the 400 that would be a correct assumption.  2300 Representative Gatto Asked why there was no allocation for any school with exactly 750 students.  2336 Mr. Jeans State that to take the 750 through the funding formula, there would be 793.6 for that school with this formula.  2351 Mr. Jeans The next adjustment would be to the 305 students and with the computations for  adjustment to the ADM, providing for 379.45.  2420 Mr. Jeans Continued, the last adjustment for school size would be the youth facility, with 12 students, which falls into the range of 10-20, providing for the base allocation of $39.60. The adjusted ADM for school size for Nome would be 933.  2455 Mr. Jeans Spoke to the district cost factor. The Department of Education & Early Development is required to monitor and report on the district cost factors to the legislature every other year. Those numbers are laid out in statute and are specific to each school district. Those numbers range from 1.0 - 1.736.  2531 Co-Chair Harris Asked about the latest district cost factor for a school less than 1.  2546 Mr. Jeans Replied that Mat-Su was at .99. That study would indicate .99 not 1.  2607 Representative Asked if the Legislature would receive a Wilson "district cost factor" this year.  2622 Mr. Jeans Explained that the Legislature had contracted out for their own study. When SB 36 was passed, the Department was required to do a report that covered three areas: · District costs factors · Comparison of the old formula to the new · Adequacy The Department did that report two years ago. The Department attempted to use the McDowell methodology but it was not successfully funded. The Legislature then contracted for the study.  2736 Representative Hoped that the Department would have some Wilson recommendations that could be compared to the private study. Mr. Jeans understood that study would take the place of the one provided by the Department.  2802 Representative Asked when would there be a discussion in Kapsner full regarding the cost study.  2816 Co-Chair Harris Replied in the future.  2822 Mr. Jeans Continued, the school size adjustment for Nome was 933; the district cost factor is 1.319. The adjusted ADM after the cost factor is 1,231.  2831 Mr. Jeans The next adjustment is for special needs, 20% block funding allocation for categorical programs. To qualify for the funding, the district must submit a plan  to the Department on how they intend to utilize those funds. The districts all did that in 1999.  2907 Co-Chair Harris Noted that in his district there are many Russians who do not speak English well. They would be considered bilingual. He emphasized that they are a huge percentage of the students. He asked if 20% was the maximum that any school could receive.  2946 Mr. Jeans Replied that it is a flat 20% block funding and that the Department cannot give more.  3004 Representative Asked the projected need of each Kapsner district. She pointed out that some districts do not have a 20% need and some districts have a much greater need.  3023 Mr. Jeans Replied that he could not do provide that information. The way that the school districts report their expenses is under one category called instruction. Special education is the only category that is broken out separately.  3054 Representative Questioned where the Legislature could Kapsner get that information.  3107 Mr. Jeans Responded that the Department would have to collect it from each individual district assuming that the district was tracking the individual programs.  3118 Co-Chair Harris Stated that on February 19th at 1:30 p.m., there will be a meeting to discuss cost differential concerns.  3139 Mr. Jeans Continued that the special needs adjustment was a 20% block allocation. He referenced the new adjusted ADM of 1,478.  3153 Mr. Jeans School districts receive funding for intensive special education students that: · Are receiving intensive services · Are enrolled on the last day of the 20 school day count period · Have an established Individual Education Plan (IEP) The districts intensive student count is multiples by five. Each student enrolled in the district generates $20,050 dollars. Nome identified one student.  3232 Representative Asked for a breakdown of each step and Wilson how it coordinates with each letter of the formula.  3252 Mr. Jeans Advised that Step 1 would correspond with  column O, step #2-Q, step #3-R, step #4- T, and step #5-B.  3433 Mr. Jeans Stated that correspondence funded programs are calculated by multiplying the ADM by 80%.  3457 Representative Gara Inquired about the adjustment for special needs students versus intensive need students.  3514 Mr. Jeans The intensive need student is multiplied times 5, and the 20% block funding is added on after the adjustment for the cost factor and the school size. It is the entire population after those adjustments.  3545 Representative Gara Asked if it was assumed for special needs students that every district would receive the 20% adjustment.  3554 Mr. Jeans Stated that was true. He offered to explain the previous funding formula at another time.  3611 Mr. Jeans The next step is to calculate the district's entitlement under the foundation formula for basic need. For Nome, that number would be $5,947,472 dollars.  3648 Mr. Jeans The next slide summarizes the steps taken to achieve that amount.  3704 Mr. Jeans The adjusted district ADM multiplied by the base student allocation, $4,010.  3736 Mr. Jeans For the purpose of calculating the normal required effort, the State will consider ½ of the increase property value of those communities. 1999 was established as the base year. That number will help to determine the 'education full value'.  3804 Representative Croft Asked in those municipalities that have a tax base and are growing, what would be the effect.  3823 Mr. Jeans They would contribute ½ the growth.  3830 Representative Gatto Asked if the accelerated growth was different than linear growth in regard to the calculations.  3846 Mr. Jeans Responded that the discussion was regarding any growth. Many small, first class municipalities have very little property growth. They would continue to pay based on the old value.  3912 Representative Asked which communities are growing more Kapsner quickly.  3936 Mr. Jeans Outlined that the calculation is applied to every school district.  3948 Representative If a town is growing quickly, they only  Wilson pay 1/2 as much as normal.  4016 Mr. Jeans Replied that was correct. He added, that was for any growth.  4020 Representative Additionally, if a community is loosing Wilson students, do they loose the full or ½ amount.  4034 Mr. Jeans Responded that the property wealth is not based on the student population within the community. It is based on the value of taxable real and personal property in your community. If the value is declining in the community, the mechanism does not benefit your community.  4112 Representative Croft Questioned who were the "big winners & losers" in this process.  4139 Mr. Jeans Responded that he would provide that information.  4150 Mr. Jeans Pointed out that the full value for Nome in 2002 was $207 million dollars. It changed $15 million dollars in three years.  4225 Representative Gatto Interjected that Mat-Su is the fastest growing community in the State. That district has indicated because of the accelerated growth, the required local effort has increased disproportionately.  4302 Mr. Jeans Discussed that their required local effort does increase as the value increases. The taxable property in Mat- Su has increased and therefore under this formula, they are required greater funding for education.  4346 Representative Croft Asked that in effect with this formula, the growing communities have a lower tax base than the others.  4412 Mr. Jeans That is correct.  4421 Representative Gara Asked about the perceived policy base for the benefit to the communities that are growing.  4455 Mr. Jeans Stated that he could not comment on that.  4509 Mr. Jeans Noted that the required local effort is the lesser of the four mil equivalent on the education full value. Not to exceed 45% of a districts basic need for an entire year. For those communities that have a high property wealth, the State has established a maximum level of local support for education. In the above scenario, Nome would be required to contribute 4 mils.  4622 Mr. Jeans Addressed the Title Impact Aid payments. That aid is counted by the Federal  dollars received by the district, the last day of February.  4653 Mr. Jeans Nome for the purpose of State funding, would have $49 thousand dollars available in federal receipts. The Impact Aid Program has a provision in it that requires a calculation.  TAPE HFC 03 - 19, Side B  4700 Mr. Jeans Continued, impact aid revenues are considered local revenues. However, local revenues are treated in the State funding formula that is how impact aid will be treated. For municipalities, there is a required contribution or mil. The municipalities are allowed to contribute local revenue over and above that 4 mils up to 23% of their basic need.  4609 Mr. Jeans Reviewed the impact aid calculations for Nome: $27,473.  4435 Representative Croft Asked if the local schools paid more minimum would they then be able to keep more of the impact aid. He clarified that overpayments are retained.  4357 Representative Gatto Noted that if the impact aid was equivalent to the local effort would that eliminate the local effort.  4327 Mr. Jeans Responded that it would be in addition to the required local effort. He noted that the adjustments are calculated and then the adjusted ADM is multiplied by $4010 dollars to determine the entitled amount. He stressed that the he basic need is the entitlement.  4257 Representative Gatto Asked if all communities have some required local effort.  4240 Mr. Jeans Replied that every community has some kind of required local effort and that impact aid is considered local effort. He acknowledged that there are members of the Legislature that disagree with that analogy. The money is coming from the federal government. He continued discussion regarding the districts that do not have a required local effort. Mr. Jeans referenced Page 9.  4114 Representative Observed that if school districts are Wilson forced into a borough that the funding would remain the same. The required local contribution would only replace the federal impact aid.  4007 Mr. Jeans Noted that the last three boroughs that  incorporated, those costs were more with incorporation then through the foundation formula [prior to incorporation]. He noted that the fourth borough that recently incorporated received more State aid since its incorporation as they did not have high property value.  3800 Representative Confirmed that it is illegal to assess Kapsner property taxes on federal land such as Native allotments, pointing out that there is no way to assess property value on 60 percent of the State of Alaska's land. Mr. Jean understood that certain lands were non-taxable and that is why those people qualify for impact aid.  3715 Co-Chair Harris Pointed out that taxes are not paid on land where there are military bases.  3646 Mr. Jeans Reviewed the additional local contribution of a school district, which can be the greater of 2-mil tax levy or 23 % of the district's current year basic need. In response to Representative Croft, Mr. Jeans stated that local contribution could be capped. Federal aid is taken into consideration in the federal impact formula and to do that, the State has to meet an equalization test under the federal law. The disparity test clarifies that the State cannot have more than 25% variance in revenue between the wealthiest and poorest district.  3499 Mr. Jeans The formula assumes that everyone is equal at basic need.  3440 Representative Gatto Clarified that the federal government is attempting to guarantee that the very wealthy districts do not have an undue advantage over poor districts. Thus, the parameters are established at no more than 25%.  3403 Mr. Jeans Reviewed Nome's local effort. The maximum contribution that Nome will be able to receive according to calculations is $2,166,060 dollars.  3326 Mr. Jeans Discussed Quality School Grants. School districts must submit a plan to the Department regarding how to spend the funds. These are targeted funds for student intervention. The statute clarifies that $16 dollars per adjusted ADM would be added. Nome would qualify for $23, 131 under this program.  3252 Mr. Jeans Addressed the supplemental funding  "floor" bridges the transition between the old funding formula implemented in 1998 to the new funding formula implemented in 1999.  3156 Mr. Jeans In response to a question by Representative Gatto, explained that SB 36 targeted funding for student intervention programs. He explained that the number of students had multiplied $16 dollars.  3043 Representative Questioned what would have occurred if it Wilson had been added to the ADM.  3023 Mr. Jeans Observed that the funding level would have remained about the same. The Legislature directed how the money was to be spent for to student intervention.  2957 Mr. Jeans He provided members an example of the supplemental funding floor. Under 1999 if a district generated $1,100,000 under the old and $1,000,000 under the new, they would receive $100,000.  2854 Mr. Jeans Observed that the intent was to be an adjustment tool. He reviewed Nome's calculations.  2742 Mr. Jeans Observed that if there is a decrease below 95 percent, the floor is decreased by the same amount.  2709 Mr. Jeans Reviewed the establishment of Nome City's school funding floor. He noted that Nome would have another increase in FY04, which would place them on the new funding floor.  2610 Representative Referred to the overall loss of school Kapsner funds for Nome with the changes in the formula.  2515 Mr. Jeans In response to a question by Representative Wilson, Mr. Jeans explained that either more students or an increase in the base student allocation causes the changes in basic need. Once the floor is reached, the funding is based on what you make through the formula.  2359 Co-Chair Harris Pointed out that the premise was that the Legislature felt that some schools were receiving less than some of the rural schools.  2346 Mr. Jeans Responded that this is only a 'hold harmless provision' from a rewrite of the foundation funding formula. It is a transition provision. It only erodes when there is an increase in the yearly  entitlement.  2308 Mr. Jeans Continued, the supplemental funding floor is a reduction of 40% of the increase over the prior year.  2251 Mr. Jeans Components of State aid as it relates to Nome with a total State aid entitlement of $5,145,000 dollars. If insufficient funds are provided by the Legislature to meet the total entitlement of all districts, then the amount is prorated the programs equally.  2233 Mr. Jeans Concluded his presentation on the foundation-funding program.  2220 Representative Gatto Question regarding the funding floor and asked why some children are only worth 60% of other children. He asked if the funding floor had changed in the last 4 years that had changed that.  2137 Mr. Jeans That is a 'misperception' that some students are only worth 60%. The funding floor is transition provision from the old to the new funding floor. In reality, districts have changed the amount they receive from the funding floor.  2050 Representative Gatto Asked if the State had followed through.  2039 Mr. Jeans Emphasized that the State is still following through; however, Nome has hit the end of their transition.  2024 Co-Chair Harris Applauded the presentation presented by Mr. Jeans.  1959 Representative Gatto Echoed his gratitude and noted how astounding it was, the amount of work it took to agree on a foundation formula.  1935 Co-Chair Harris ADJOURNMENT:   The meeting was adjourned at 12:52 P.M.