HOUSE HEALTH, EDUCATION AND SOCIAL SERVICES STANDING COMMITTEE January 31, 1995 3:02 p.m. MEMBERS PRESENT Representative Cynthia Toohey, Co-Chair Representative Con Bunde, Co-Chair Representative Al Vezey Representative Gary Davis Representative Norman Rokeberg Representative Caren Robinson Representative Tom Brice MEMBERS ABSENT None OTHER HOUSE MEMBERS PRESENT Representative Kim Elton COMMITTEE CALENDAR Update by the School Bond and Reimbursement Committee Overview of the Alaska Postsecondary Education Commission Overview of the University of Alaska WITNESS REGISTER DON GILMAN, Mayor, Kenai Peninsula Borough and Chairman, Bond Reimbursement and Grant Review Committee 144 N. Birkley Soldotna, AK 99669 Telephone: (907) 262-4441 POSITION STATEMENT: Provided overview information on Bond Reimbursement and Grant Review LEN MACKLER, Director, Physical Plant Fairbanks North Star Borough School District and Member, Bond Reimbursement and Grant Review Committee P.O. Box 1250 Fairbanks, AK 99712 Telephone: (907) 452-4401 POSITION STATEMENT: Provided overview information on Bond Reimbursement and Grant Review. JOE L. McCORMICK, Executive Director Alaska Commission on Postsecondary Education Department of Education 3030 Vintage Boulevard Juneau, AK 99801-7109 Telephone: (907) 465-6740 POSITION STATEMENT: Provided overview information on the Alaska Commission on Postsecondary Education. JERRY LEWIS, Executive Director Governor's Council on Vocational Education 211 Fourth Street, Suite 101 Juneau, AK 99801 Telephone: (907) 586-1736 POSITION STATEMENT: Provided overview information on the Alaska Commission on Postsecondary Education. ALISON ELGEE, Director Statewide Budget Office University of Alaska 227 4th Street Juneau, AK 99801 Telephone: (907) 463-3086 POSITION STATEMENT: Provided an overview of the University of Alaska ACTION NARRATIVE TAPE 95-3, SIDE A Number 000 CO-CHAIR CON BUNDE called the meeting of the House Health, Education and Social Services (HESS) Committee to order at 3:02 p.m. Committee members present at that time were Representatives Con Bunde, Cynthia Toohey, Gary Davis and Caren Robinson. Co-Chair Bunde stated that a quorum was present to conduct business. Number 080 CO-CHAIR BUNDE announced that at 3:04 p.m. Representative Norman Rokeberg arrived. OVERVIEW OF THE BOND REIMBURSEMENT AND GRANT REVIEW COMMITTEE Number 097 DON GILMAN, Mayor, Kenai Peninsula Borough, and Chairman, Bond Reimbursement and Grant Review Committee, introduced other members of the committee which were present: Mike Franks, Facility Project Engineer, Anchorage School District; Duane Guiley, School Finance Director, Department of Education; Harley Hightower, Architect; Frank Hill, Superintendent, Lake and Peninsula Borough School District; Len Mackler, Director, Physical Plant for the Fairbanks North Star School District; and Dee Hubbard, an interested parent from Eagle River. Number 219 MR. GILMAN gave committee members a handout which listed the committee's statutory responsibilities, committee accomplishments and committee goals. Number 302 CO-CHAIR BUNDE announced, for the edification of the committee, that prior to the establishment of the Bond Reimbursement and Grant Review Committee, schools were funded by political clout and money was given to whomever complained the loudest. He explained that the committee is an attempt to fund schools in a manner which is more consistent and fair. The committee is developing a list of criteria which must be met in order for a school to receive funding. This is a difficult task, considering the number of different schools in the state. Number 302 MR. GILMAN also handed out a copy of a letter of recommendations, sent to the commissioner and the State Board of Education, concerning capital needs the committee had perceived after receiving the first round of applications under the new system. He explained that the letter states the committee has projected a need for about $600 million over the next six or seven years. A large portion of the funding is needed for maintenance, as opposed to new construction. The committee recommended that the board request $100 million every year, over the next six years, to meet those needs, and that in the first year they request that 70 percent of that money be set aside for major maintenance. Number 442 MR. GILMAN clarified that there are two funds, a construction fund and a maintenance fund. He said that there has not been any money in those funds since 1994, because in 1993, such a large amount of money went into school construction and, in 1994, there was no money left. Number 490 MR. GILMAN stated that the committee feels whatever amount of money the legislature decides to provide, most of the money should be put into the maintenance fund. The committee received about 350 applications for projects in 1994. Each project was ranked either in construction or maintenance. The committee tried to establish an objective method for ranking, and out of the 350 applications, only four ended up in appeal and are being heard either on February 1 or 2, with a hearing officer. Number 557 MR. GILMAN said that the committee has experienced difficulty meeting obligations, as set by the statute, which established the committee. Much of this difficulty is due to delays in getting information to school districts and new applications. Mr. Gilman felt this caused some ill will in some school districts. The committee is trying to rectify those problems by providing all information to the school superintendents by the first day in April. This allows superintendents some time, before school is out for the summer, to complete the application forms. There will also be changes in the forms to make them simpler. Number 675 CO-CHAIR BUNDE pointed out for the HESS Committee members that the challenges facing the Bond Reimbursement Committee include developing a ranking system. In addition, many school districts chose, either consciously or unconsciously, not to provide all the information necessary to the Bond Reimbursement Committee. Therefore, the Bond Reimbursement Committee is not only trying to construct a workable system, but also it must educate school districts on the importance of the system. Depending on which district a person represents, he or she may or may not be happy with the rating system if his or her school ranks high or low. Number 726 CO-CHAIR BUNDE recommended that the Bond Reimbursement Committee make a presentation to the education subcommittee chairman of the Finance Committee because the capital budget appears to be about $100 million, and the Bond Reimbursement Committee needs $100 million. It is important for the Finance Committee to know what is occurring. Number 761 MR. GILMAN replied that when the bonds where approved, there was a cap of $250 million. Anchorage and Fairbanks were allotted $200 million and $50 million was given to the rest of the state. The needs of the rest of the state were in excess of $50 million, therefore, the committee has recommended to the board that the level be raised a certain amount, per year, for the next four or five years in order for districts to go to the bond market should they desire to do so. Number 803 MR. GILMAN said that right now there are no more bonds left. The entire $50 million authorized to the remaining parts of the state have been authorized and sold except for perhaps one or two small issues. Number 821 CO-CHAIR BUNDE noted, for the record, that Representative Tom Brice joined the meeting at 3:14 p.m. Number 857 REPRESENTATIVE GARY DAVIS asked Mr. Gilman whether the remaining $200 million was also used for Anchorage. Mr. Gilman said he believed that $133 million was earmarked for Anchorage, and $67 million was allotted for Fairbanks. Fairbanks has not passed one bond issue. Mr. Gilman wondered what would happen to the authorization if Fairbanks does not use it within a certain amount of time. Number 909 CO-CHAIR BUNDE stated that REPRESENTATIVE AL VEZEY joined the meeting at 3:15 p.m. MR. GILMAN stated that Anchorage has already authorized and/or sold almost all of their bonds. Number 939 REPRESENTATIVE CAREN ROBINSON asked Mr. Gilman if he had a chance to look at a bill sponsored by Representative Jeannette James. This bill aims to set a program for the maintenance of all existing facilities, including education facilities. She surmised that such a bill would affect Mr. Gilman's program. Number 973 MR. GILMAN said that the bill was briefly discussed but his committee did not have a copy of it. Representative Robinson said that Representative James plans on having all affected groups look at the bill and moving it slowly so all interested parties can assist in the process. MR. GILMAN stated that an effective maintenance program is one of the major criteria his committee evaluates when ranking schools. Many school districts have maintenance programs, and there are many interpretations of that term. Many maintenance programs include only cleaning, and others include painting and simple construction. It is difficult for the committee to decide how they give credit to a school that has had a good maintenance program, and suddenly the school has major maintenance needs through no fault of their maintenance program. Such a school should be given extra points which brings them to the top of a priority list, instead of being penalized for having a good maintenance program. Number 1066 CO-CHAIR BUNDE asked for a brief synopsis of the checklist/application which a school would have to fill out. Mr. Gilman said that the checklist had been used once already as the major evaluation instrument. He then called upon another member of his committee to explain the checklist. Number 1115 LEN MACKLER, Director Physical Plant of the Fairbanks North Star Borough School District, explained that the application form has already been used in the process to gather requests on September 1, 1994. Co-Chair Bunde asked if the application went to all school districts in the state and Mr. Mackler said yes, in the most timely fashion possible. Number 1140 MR. MACKLER felt the application provided more information than the previous form, which is used to tally scores. The current application has 43 items on it, some of which are quite detailed. It begins by asking what category of funding the request is for, such as school construction or major maintenance. The applicant must designate the purpose of the project, provide a description of the project, provide a cost estimate, provide a building site definition and state whether the project will use new land. The applicant must also provide condition surveys, confirm that they have a functional fixed asset inventory system according to statute, and confirm they have a functional preventative maintenance program, which is also part of the statute. Number 1200 MR. MACKLER continued that part of the problem with those criteria is verification of data received on the application, and the effectiveness of the programs reportedly in place. A third problem is the rating of programs on a numerical scale as to effectiveness. Further criteria is that applicants must verify they have insurance. They must provide information as to what facilities the insurance covers and provide the age of the facility. More scoring points are given to older facilities. Information is required on the application concerning student populations in the current facilities, the number of students housed in all facilities within the attendance area that serve those ages of children, and also student number projections for two years, five years and seven years into the future. Number 1262 MR. MACKLER stated that some school districts are very good at predicting future enrollments, and others are not either able to predict or do not predict accurately. When speaking about school construction, the projected population is a very difficult issue to decide upon. Current requests often look five to seven years in the future and population needs must be projected accurately. Applicants must also provide information, to the committee, about the current replacement value of their existing facilities, and average annual maintenance expenditures. This information is necessary to determine the maintenance effort expended by the applicant in the past. This is also a difficult issue to quantify for ranking purposes. The committee recognizes that just because maintenance expenditures are high does not mean that maintenance has been effective. This is a major point of contention between the committee, the legislature and the school districts. The legislature has said that the greatest credit should be given to those who have done the best with their operating funds to maintain their facilities in the long-term best interest of the state. MR. MACKLER added that the least amount of capital money should be provided to those who have done a poor job maintaining their facility and have chosen to spend their money elsewhere. Number 1350 MR. MACKLER concluded the application overview by saying that the applicant is asked questions on how local matching funds are to be achieved, what the applicant wishes to build, and whether existing facilities exist which could do the job. MR. MACKLER stated that the committee has listened to a number of people, in the field through conferences, and is concentrating on correcting and updating the form. The committee is also working on updating the scoring system to increase fairness and getting the revised information out to interested parties in order to receive more input. He expects the final form will be out by April 1. Requests for next year are due by September 1. Number 1408 CO-CHAIR BUNDE asked if it would be a fair summary to say that the Bond Reimbursement Committee is attempting to create a document which takes as much objectivity as possible out of funding the maintenance and building of schools, and that the purpose of the committee is to provide this instrument to the Department of Education which will use the application to fund future maintenance in schools. MR. MACKLER replied that Co-Chair Bunde was correct. The Department of Education will use the application to prioritize which school districts get scarce funding resources. Number 1437 CO-CHAIR TOOHEY commented that the task was difficult. She rhetorically asked how the Bond Reimbursement Committee can make it easier for school districts to be honest with the legislature concerning their maintenance practices, and how one would convince the districts to be more fastidious with maintenance duties. MR. MACKLER agreed that Co-Chair Toohey asked a tough question, but it is a question that needs to be dealt with. Another concept that must be considered is that of the "sins of the fathers," in which people working in districts now should not have to pay for poor maintenance which occurred in the past. Number 1468 CO-CHAIR BUNDE stated that to not deal with such a problem put the funding process back to the beginning, in which the legislator with the most seniority, or the legislator on the Finance Committee, received funding for his or her school district. Number 1478 REPRESENTATIVE NORMAN ROKEBERG asked Mr. Mackler what percentage of the Fairbanks School District budget goes toward maintenance. Mr. Mackler replied that 14 percent of the operating budget goes into maintenance. That 14 percent covers custodial, utilities and further maintenance. Representative Rokeberg asked for statistics on other school districts. Mr. Mackler replied that Juneau uses about 11 to 12 percent of their budget for maintenance, Anchorage allots about 15 percent, and the Kenai area allots about 17 percent for maintenance. REPRESENTATIVE ROKEBERG asked if Mr. Mackler knew what percentage of the budget would go for maintenance if janitorial and utility costs were not included. Number 1530 MR. MACKLER answered that was a hard question, because many districts have different definitions of what a custodian's duties are. In Mr. Mackler's district, they require that custodians spend about 25-30 percent of their time on maintenance duties such as painting, wall repair, carpet repairs, cleaning vents, filter replacement, etc. Other districts may have custodians who perform only cleaning duties. That is another issue the Bond Reimbursement Committee is dealing with. Number 1570 REPRESENTATIVE ROKEBERG asked if there was a national standard as to the percentage of a school district budget allotted to maintenance. Mr. Mackler had not seen such a national standard, but he felt that a national rule of thumb is that 2 percent of the replacement cost of a building should go to maintaining it every year. REPRESENTATIVE ROKEBERG asked if a 50 year, straight line depreciation schedule was adequate for a public facility. Mr. Mackler replied that would assume the building had been built in the first place to last for 50 years, and that the environment allowed the building to live for 50 years. Representative Rokeberg felt that the private sector would not accept a 50-year depreciation schedule. Number 1612 CO-CHAIR BUNDE asked Mr. Mackler for the highest and lowest percentages allotted for maintenance in Alaska. Mr. Mackler thought that Juneau's allotment was low, but he didn't know of what their maintenance program consists of. He continued that other school districts may have allotments over 25 percent. He reminded the HESS Committee that utilities are included in such an account, and the cost of utilities varies from area to area. Number 1642 REPRESENTATIVE ROKEBERG asked Mr. Mackler if his systems used any type of component part depreciation schedule to analyze the life span of particular components in a facility. Mr. Mackler responded that he has an extremely comprehensive preventative maintenance program in place for his school district which has won national awards. In that program, he has a computerized analysis of major components and they use predictive replacement. For example, a fan motor with 17,000 hours on it is replaced at that time because the prediction is that it will fail at about 20,000 hours. Number 1683 REPRESENTATIVE ROKEBERG commended Mr. Mackler and asked how much money the Fairbanks School District used for maintenance on a bonded basis or a capital improvement basis in the last five years as a result of Mr. Mackler's preventive maintenance program. Mr. Mackler did not know the answer to that question, but he said that in the last five years not a single classroom or instructional day was lost due to a system failure. REPRESENTATIVE ROKEBERG asked if funds from state bonding or state capital appropriations have been used for maintenance items in Mr. Mackler's district. Mr. Mackler replied that very little funding has been coming through the state, and no funds had been received through bonding. Some money for roof repair, fire alarm improvements and upgrades have been provided by the state. More funding has come from the local borough, approximately $20,000 to $70,000 has been given for systems items or major maintenance on systems. Number 1737 CO-CHAIR BUNDE clarified that one of the goals of the Bond Reimbursement Committee is to encourage people to spend more money, on maintenance, throughout the state. Mr. Mackler added that 70 percent of the first year's revenue stream allotted for school construction issues is to be used for maintenance, not for new construction. REPRESENTATIVE AL VEZEY commented that he remembered the Fairbanks School District received somewhat less than $2 million in, fiscal year 1994, for life safety upgrades and roof repairs. REPRESENTATIVE TOM BRICE added that the $2 million was mostly discretionary money. Number 1777 REPRESENTATIVE ROKEBERG expressed concern that if the committee recommends that 70 percent of state capital money be authorized for maintenance, what would a school district, such as Fairbanks, stand to gain from this appropriation? Mr. Mackler replied that he had uses for such money, such as roof replacements. No matter how excellent of a program he has in place, sooner or later buildings begin to deteriorate. REPRESENTATIVE ROKEBERG said that such a problem speaks to the dilemma that those who perform excellent maintenance duties should not be penalized through lack of funding. Number 1840 REPRESENTATIVE ROKEBERG recalled testimony concerning a survey done in the Anchorage School District which indicated there was deferred maintenance, from several years ago, which would cost several hundred million dollars to repair. This was a major concern of Representative Rokeberg's. He felt that perhaps many of the school districts, in the state, have been relying too much on capital grants and bonding monies rather than allocating a sufficient portion of their operating budgets to the maintenance and operation of their facilities. Number 1889 CO-CHAIR BUNDE thanked Mr. Gilman and Mr. Mackler for the overview and introduced the speaker for the Postsecondary Education Committee. OVERVIEW ON POSTSECONDARY EDUCATION Number 1942 DR. JOE McCORMICK, Executive Director, Alaska Commission on Postsecondary Education (ACPE), Department of Education, provided the HESS committee with information on the activities of his commission and the Alaska Student Loan Program. DR. McCORMICK began by listing the general duties of the ACPE. They include: 1)Consumer protection, which consists of handling customer complaints, insuring refunds when schools close, and providing factual information about the postsecondary educational opportunities available. Number 1978 2)Institutional Authorization, which involves a biennial review and reauthorization of approximately 100 postsecondary institutions. The commission also regulates program and degree offerings and approves institutions for Alaska student loans and Veterans Affairs Programs. 3)The commission provides state student financial aid programs for full and half-time students: Teacher scholarships, family education loans, state and federal grants to low income students, the Western Interstate Commission for Higher Education (WICHE) Professional Exchange and the Washington, Alaska, Montana, Idaho (WAMI) Medical Education Program, as well as the Alaska Student Loan Program. Number 2009 4)The commission administers the state postsecondary review entity (SPRE) to insure continuing availability of federal Title IV funding to eligible Alaskan institutions. 5)Finally, the commission provides administrative support to the Governor's Council on Vocational Education. DR. McCORMICK announced that Jerry Lewis, Representative, Governor's Council on Vocational Education, was present at the overview. Number 2037 DR. McCORMICK continued that the Alaska Student Loan Corporation also has a number of duties separate from the commission's activities. They include: 1)Borrowing funds to carry out the purpose of the corporation and issue obligations as evidence of this borrowing. The corporation issues tax exempt bonds to finance the availability of loan capital. 2)Investing and reinvesting money held by the corporation. 3)Providing for appropriate servicing of the Alaska Student Loan Portfolio. Number 2048 DR. McCORMICK continued by saying it was important to point out that the bond debt issued by the corporation is not pledged to the state of Alaska, but is backed by the assets of the Alaska Student Loan Fund. Number 2071 DR. McCORMICK updated the HESS Committee on the changes that have been made since he joined the commission in December, 1993, and provided a brief overview of the duties and responsibilities of the Commission on Postsecondary Education and the Alaska Student Loan Corporation. DR. McCORMICK continued that when he first met with the legislature last year he was new to the commission. At that time, the loan program was suffering major inadequacies in customer service and financial stability. Over the past year significant changes have been made. Customer service was suffering from six or more months of backlogs in correspondence, excessive telephone hold time, and an eight-week turnaround time for student loan application processing. Today, backlogs have been virtually eliminated. It is a performance standard for the staff not to have backlogs. The telephones are answered within three seconds and loan processing has been reduced to 72 hours. He would like to reduce it further to 72 minutes. Number 2129 DR. McCORMICK stated that since joining the commission, he made every effort to promote the financial security of the Alaska Student Loan Program. When he met with the legislature last year, the corporation had just issued bonds that were uninsured. This past July, the $50 million in bonds that were issued were not only fully insured, but the stable financial position enabled the commission to negotiate one of the lowest rates in the commission's history. This increased financial stability will allow the program to be a continued source of financial support for Alaska's students in years to come. DR. McCORMICK added that over the past two years, in addition to improving customer service, the commission has made progress toward improving overall program administration. The staff has been restructured so it is a more horizontal, functional organization. Procedures have been overhauled so that the organization is more efficient. Changes to cumbersome regulations have been pursued to help streamline operations and reduce administrative costs, always stressing customer service, constant innovation, and engaging technology to the fullest. Number 2177 DR. McCORMICK stated that currently, the operational objectives of the commission are maintaining a high level of customer service and enhancing the long-term financial stability of the Alaska Student Loan Program. As previously mentioned, some dramatic improvements in both of these areas have been made over the past year. However, due to the fact that the loan program is funded solely by corporate receipts, losses had to be absorbed due to statutory provisions such as the requirement to honor forgiveness for loans made prior to 1987, non-accrual of interest during in-school and deferment periods, and the losses due to uncollectible student loans. Number 2204 DR. McCORMICK added the organization is a "stand-alone" loan program. No reimbursement or refinancing is received for those losses. The losses come directly from the fund. The most serious concern for the commission in the coming year is the loan system software. For a number of years the loan system suffered serious problems because of the outdated, very manual loan servicing system. After audit deficiencies were identified in 1993, as a result of the current software, the ACPE took dramatic steps to resolve the loan system difficulties. DR. McCORMICK continued that an intensive study was conducted by the firm of Peat Marwick and it was concluded that a new software system was necessary to effectively award and service student loans. The new software system would greatly enhance customer service by a fully automated system. It would also dramatically decrease operating costs by reducing manual tasks. In December, 1994, the Legislative Budget and Audit Committee approved $250,000 in funding for the first phase of the project, to identify the software needed. The ACPE will be working with the Office of Management and Budget to propose to the legislature the additional funding needed to fully implement this proposal. Number 2265 DR. McCORMICK stressed that no general fund dollars are being asked for in this appropriation. These come from corporate receipts of the loan fund itself. DR. McCORMICK stated that another important objective for this session is the passage of a transition bill which would enable the ACPE to establish an interest rate for the upcoming school year. This is a technical change which was inadvertently omitted from HB 506, which was passed last year. HB 506 failed to contain necessary transition language to allow the commission to draft appropriate regulations to set the interest rates for loans to be disbursed on July 1. Number 2294 DR. McCORMICK said they plan to continue efforts to improve customer service and financial soundness. To further this goal, the ACPE hopes to make the borrower be more responsible for their loans and to pay interest during the deferment periods and other periods where interest does not accrue, to increase funding for graduate students, to extend the number of years for repayment, and to increase the number of months before a loan goes into default. TAPE 95-3, SIDE B Number 000 DR. McCORMICK closed by saying that the goal of the commission is to move the Alaska Student Loan Program toward a completely self- sustaining, financially sound future. Proposed legislation has been submitted to the Governor's Office, for their review, that will accomplish these goals. The ACPE will continue these progressive changes, and continue to focus efforts on the needs of Alaska students because the commission is committed to helping Alaska invest in its most valuable resource, its people. Number 0074 CO-CHAIR TOOHEY asked Dr. McCormick if his plan had progressed as he had hoped. DR. MCCORMICK replied that the commission is ahead of where he thought they would be at this time last year. The legislature was very supportive last year and they are right on schedule. If this progress continues, and the legislature gives the commission the authority to continue the program implementation, the commission will soon be in very good shape for the first time in many years. Number 160 CO-CHAIR TOOHEY asked if the $250,000 approved by the Legislative Budget and Audit Committee was just for the study or for software acquisitions as well. Dr. McCormick answered that the money was only for the identification of software, to issue specifications for the software and search for the correct software. The ACPE would get acquisition funds from the capital budget request that the commission is working on with the Governor's Office and the Office of Management and Budget. The actual funding of the implementation phase of the process will come from the FY96 capital budget request. Number 219 DR. McCORMICK again stressed that the commission was not asking for funding per se, but asking for permission to spend corporate receipts which are already in the student loan fund for this purpose. Number 234 CO-CHAIR TOOHEY inquired about the amount of loans given prior to 1987. Dr. McCormick answered that amount in total was about $200 million. If students met certain conditions, a portion of their loans could be forgiven. Number 275 REPRESENTATIVE GARY DAVIS asked Dr. McCormick about the student loan process to establish the Alaska residency of a student. Some students do not qualify for the permanent fund dividend and yet they receive student loans. Representative Davis expressed frustration over these inconsistencies. College students, in general, really need the permanent fund dividend and he was not happy with some of the permanent fund regulations which disqualify the students as residents. Number 419 CO-CHAIR BUNDE noted for the information of the HESS Committee members that bills were pending concerning the Postsecondary Education Commission. Dr. McCormick deferred from briefing the HESS members on those bills until he had a chance to brief and receive the support of the Governor's Office. Number 431 REPRESENTATIVE ROKEBERG asked about loan limits for students. Dr. McCormick answered that the annual loan limits are $5,500, per year. There is no distinction between graduate and undergraduate student amounts. Current interest rates are at 8 percent simple interest. This interest rate was set by statute, however, this was changed last year to allow the commission to set the rate based on the cost of bonds and the cost of administering the loan program. Unfortunately the transition language that authorizes the commission to write regulations to change the rate was omitted from HB 506. Dr. McCormick asked to have the bill which rectifies that problem sped through the system, so the commission can legally issue regulations and can legally disburse loans at an interest rate to students by July 1. Number 519 CO-CHAIR BUNDE announced that the bill of which Dr. McCormick spoke of will be noticed Thursday, and will be heard probably Tuesday, February 7. Number 552 JERRY LEWIS, Executive Director, Governor's Council on Vocational Education, testified before the HESS Committee. He informed the committee members that his council is autonomous and independent. Therefore, they must select their own financial agent. They have a memorandum of agreement with the ACPE to act as the council's financial agent. The council is strictly funded by federal funds, receiving a grant of $150,000 per year. All personnel and financial arrangements are taken care of by the ACPE. Number 594 MR. LEWIS continued that Marie Becker, a member of the council, is also on the ACPE as per requirement. Number 618 CO-CHAIR TOOHEY asked Mr. Lewis if the commission received any compensation for serving as the council's financial agent. MR. LEWIS answered that the commission gets $5,000 annually, which comes from the grant. CO-CHAIR BUNDE thanked Dr. McCormick and Mr. Lewis for the overview and commended their work. OVERVIEW OF THE UNIVERSITY OF ALASKA Number 740 ALISON ELGEE, Director, Statewide Budget Office, University of Alaska, passed out a brief profile of the University of Alaska system. She explained that the system has three major administrative units, the University of Alaska Fairbanks, the University of Alaska Anchorage and the University of Alaska Southeast/Juneau. Rural campuses are all attached to one of the major campuses for administrative purposes. Number 773 MS. ELGEE updated the list of regents by noting that regents Susan Stitham and Mark Helmericks just completed their terms, and the Governor's Office would be making appointments soon. The term of student regent Scott Otterbacher will also be ending in the spring. Number 800 MS. ELGEE began the overview by saying that the university has been involved, over the course of the last year, with a program assessment. Over the last several years, the university has not obtained sufficient funding either from the state, or from efforts to generate additional income through research activities and tuition increases to cover all the fixed costs of the university. Number 831 MS. ELGEE continued that the people within the system felt that some effort must be made to identify priority programs and those programs which needed either additional enhancement to be effective or those which possibly needed to be eliminated. The program assessment process involved people at all campus levels. In September, actual target figures were issued for the purposes of assessment. The plan was designed to be a three year plan, recognizing that change takes time. The plan was to take them to FY98, with action to be taken over the next three years. Number 889 MS. ELGEE stated that the program had built in assumptions. The first is that over the course of the next three years, a 3 percent increase would be realized in terms of state general fund support. The program also had built in revenue assumptions relative to tuition and fees. It has been proposed to the Board of Regents that the consolidated fee cap, which allows students to pay for 13 credits and take subsequent credits for free, be eliminated. In addition, tuition increases over the next three years are proposed as 4 percent over the 1995-1996 academic year, 5 percent the following year and 6 percent after that. Number 952 MS. ELGEE explained that revenue and expenditure assumptions were made, also taking into account an assumption of a 3 percent inflation rate over the next three years. Recognizing that all things are not equal, the 3 percent inflation rate was multiplied by 75 percent to try to cover 75 percent of what inflation could do to costs. This data was used to develop a 2 percent allocation for program enhancement. In the program enhancement category, the board dictated that the building maintenance portion of the building maintenance and renewal and replacement formulas be completely covered by the end of FY98. This was so adequate money would be in the operating budget for building maintenance. Number 975 MS. ELGEE continued that the recommendations developed by the campuses were heard in a number of public hearings throughout the state. The university president reviewed the recommendations, held additional public hearings, and then took the proposed plan to the Board of Regents in December. The board adopted the program assessment plan with very minor changes. Number 1000 MS. ELGEE said that the plan does a variety of things. One was to look for cost savings and efficiencies in administrative support and academic administration. Some of the proposed outcomes are the consolidation of some schools and colleges. The program also looked to lowering per student costs, particularly in the rural areas. Per student costs were much higher in the rural areas. The majority of those campuses are under the University of Alaska, Fairbanks. The effort was to equalize the per student cost at all schools, to reduce administration at rural campuses and realize efficiencies through consolidation with the cooperative extension program. Number 1084 MS. ELGEE said that the program also has built in assumptions for higher faculty and staff productivity. The plan allowed the program assessment team to identify campus and system priorities which will help them designate areas for potential cross-campus collaboration in terms of instruction. Number 1084 MS. ELGEE said that her colleagues are looking at a continued higher proportion of non-general fund support with the tuition assumptions and through increased research activity, and alternatives for privatizing some operations of the university system are being reviewed. Number 1104 MS. ELGEE continued that there were several things the program assessment did not accomplish. Program assessment will not allow them to correct some very significant problems, such as the accreditation review for the University of Alaska, Anchorage, meaning the high ratio of adjunct to full time faculty on that campus. There also exists a serious problem in Anchorage concerning the provision of adequate library support services to students. Finally, throughout the system is deteriorating equipment. An annual allocation for equipment got lost during the university restructuring in the mid-1980s. The results can be seen in the sensitive equipment in the science laboratories. Number 1162 MS. ELGEE stated that a capital request is in for the natural sciences building in Fairbanks. The bulk of the request is for equipment and furnishings for that building. Number 1176 MS. ELGEE continued that they were anticipating a study of K-12 enrollments, and they are expecting an increase, in terms of demand and student enrollment, at campuses. Enrollment has been flat for the past two years, but a study of the K-12 enrollment will provide an idea of what is coming up. Some of this increased demand will be effectively dealt with through increased faculty productivity. This is on the president's agenda and improvement is being seen. However, it is difficult to anticipate whether sufficient resources will be available to deal with future demand. Number 1212 MS. ELGEE said that the university continues to struggle with deferred maintenance problems. While they are looking at reallocating money to cover building maintenance and annual renewal and replacement maintenance costs through program assessment, it will continue to be under funded. Annual renewal and replacement lends itself more to capital funding, but with the low capital budgets over the last several years, the money has not been available. Number 1239 MS. ELGEE also said that the university still struggles with a $150 million backlog of deferred maintenance. Financing possibilities are being explored. She hoped to be able to present those possibilities to the HESS Committee members shortly. Number 1260 CO-CHAIR BUNDE acknowledged the presence of Representative Kim Elton, and invited him to sit at the committee table. He declined. Number 1269 CO-CHAIR TOOHEY asked for a rough estimate on what it would cost to finish the science building of which Ms. Elgee spoke. Ms. Elgee answered that the capital request is for $4.5 million. Co-Chair Toohey asked if this would be used for the interior of the building, and Ms. Elgee replied that $3.5 million would go for furnishing the building, and the rest would be used for the parking lot, landscaping, etc. CO-CHAIR TOOHEY asked if the building was being used at the present time, and MS. ELGEE replied a few classrooms are open this semester due to an appropriation of $1 million received last year. This money was used to equip those classrooms and provide facility parking. She added that the facility is certainly not being used as it was intended at this time. Number 1315 REPRESENTATIVE BRICE mentioned that the building was indeed a world-class facility and would attract more research dollars to the state and develop the economy. He asked about the university's other legislative priorities, outside of receiving funding. Ms. Elgee answered that money was their main priority but, in addition, the board continues to support the additional land grant bill that has been reintroduced this year by Senator Steve Frank. The university is also looking at a transfer of its investment authority for the land grant trust fund from the Department of Revenue to the university. All of last year's legislation died in the process. REPRESENTATIVE BRICE commented that he hadn't heard about the reintroduction of the bill concerning investment authority being transferred from the Department of Revenue to the university. Ms. Elgee announced that she expected that bill to be reintroduced shortly. Number 1390 MS. ELGEE announced that there were some other issues that do not directly relate to the legislature. The president and vice president of the university were currently visiting Washington, D.C. to discuss, with a federal delegation, the possibility of an additional land grant through the federal government. This is an area where the university has been short-changed in the past. Number 1424 REPRESENTATIVE BRICE asked Ms. Elgee about the replacement of the Alpha Helix, a university ocean-going research vessel used by the school of fisheries. MS. ELGEE's understanding was that discussions are ongoing about the replacement of the vessel. Number 1475 REPRESENTATIVE BRICE stated that he had a great interest in the cooperative extension aspects of the school, considering it is a land grant institution and its primary goals are to have a lot of community outreach. Associated with that are mining extension programs up in Fairbanks. He asked Ms. Elgee if she had information concerning this issue. MS. ELGEE responded that an outcome of the program assessment was a recommendation to consolidate the College of Natural Sciences, the College of Engineering and the School of Mines at the Fairbanks campus. There was a lot of industry participation in that decision and it has been well received. It is felt that all three programs will be strengthened and a focus for the mining and engineering programs will be provided. In terms of cooperative extension, the combination of that with the rural colleges will make them both more effective. There will be no reduction in the cooperative extension agents. There will be savings on the administrative side, however. A closer collaboration with the rural campuses will make that unit more effective. Number 1566 REPRESENTATIVE GARY DAVIS asked Ms. Elgee about the revenue potential of the land and future development opportunities. She answered that over the last several years, the university has received between $3 million to $5 million dollars on an annual basis from the land grant trust fund. Last year was an exceptional year, primarily as a result of timber sales and other projects which came to fruition. This provided about $10 million. This is not likely to reoccur anytime soon. The majority of the land grant trust fund goes back into either the corpus through inflation proofing or the activities of the Land Management Office. Number 1625 REPRESENTATIVE DAVIS said he believed Marine Fisheries was ready to commission a fairly large ship, and there was potential that the Alpha Helix would be replaced with that ship. A nationwide bid took place, and he wondered how that process ended. MS. ELGEE replied that she was not aware of the bid outcome, however she stated that a replacement dock was needed in Seward in order to accommodate a replacement. Number 1670 REPRESENTATIVE DAVIS inquired about whether the completion of the science building represented opportunities for additional students or would the building accommodate already existing student and faculty, perhaps taking them from another facility that needs repairs. MS. ELGEE replied that the building would be used primarily for people moved from already existing space. Remodeling the existing buildings would then be investigated. Number 1709 CO-CHAIR TOOHEY said that when the land grant bill was heard in the HESS Committee last year, most members were very supportive of the bill, as it helps defer the costs of the university. She asked if there was a push to develop the land to the best of its economic potential. MS. ELGEE responded that Vice President Wendy Redmond, has had a brief conversation with the Governor's Office about the bill, and the impression Ms. Elgee received from the vice president was one of ambivalence. Number 1756 REPRESENTATIVE ROKEBERG stated that from news reports and discussions with University Chancellor Gorsuch, in Anchorage, it was his understanding that University of Alaska Anchorage was looking forward to decreased state funding and making some program assessment adjustments in anticipation of decreased state funding. He thought this was in contention with Ms. Elgee's statement that state funding would increase as well as tuition. Representative Rokeberg calculated this was due to a 3 percent inflation factor yielding 2.25 percent plus a 2 percent program enhancement for a 4.25 percent increase on an annual basis. He asked Ms. Elgee if that was correct. MS. ELGEE replied that the Program Assessment plan is a reallocation plan. It takes existing resources, makes some revenue assumptions and looks at best utilizing those resources to keep programs operating efficiently. The current operating budget year, FY95, did realize a $2.7 million reduction in terms of general fund support. Ms. Elgee believed that Representative Rokeberg may have been confusing the two issues. The two campuses had to search for areas which could absorb reductions. Number 1819 REPRESENTATIVE ROKEBERG asked if the Anchorage campus was going through that search at this time, and Ms. Elgee said that all campuses have been going through that process, and most have plans for the current year. The 3 percent growth in general funds which is built into the program assessment plan comes with the assumption that it will occur over the course of the next three years. Number 1865 CO-CHAIR BUNDE thanked Ms. Elgee for her overview. ADJOURNMENT CO-CHAIR BUNDE adjourned the meeting at 4:25 p.m.