HOUSE HEALTH, EDUCATION AND SOCIAL SERVICES STANDING COMMITTEE April 8, 1997 3:05 p.m. MEMBERS PRESENT Representative Con Bunde, Chairman Representative Joe Green, Vice Chairman Representative Al Vezey Representative Brian Porter Representative Fred Dyson Representative J. Allen Kemplen Representative Tom Brice MEMBERS ABSENT All members present COMMITTEE CALENDAR * SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 148 "An Act relating to the public school funding program; relating to the definition of a school district, to the transportation of students, to school district layoff plans, to the special education service agency, to the child care grant program, and to compulsory attendance in public schools; and providing for an effective date." - HEARD AND HELD (* First public hearing) PREVIOUS ACTION BILL: HB 148 SHORT TITLE: SCHOOL FUNDING ETC./ CHILD CARE GRANTS SPONSOR(S): HEALTH, EDUCATION & SOCIAL SERVICES JRN-DATE JRN-DATE ACTION 02/18/97 382 (H) READ THE FIRST TIME - REFERRAL(S) 02/18/97 382 (H) HES, FINANCE 04/04/97 988 (H) SPONSOR SUBSTITUTE INTRODUCED- REFERRALS 04/04/97 988 (H) READ THE FIRST TIME - REFERRAL(S) 04/04/97 989 (H) HES, FINANCE 04/08/97 (H) HES AT 3:00 PM CAPITOL 106 WITNESS REGISTER DR. JOHN G. AUGENBLICK, President Augenblick & Myers 621 17th Street, Suite 730 Denver, Colorado 80293 Telephone: (303) 293-2175 POSITION STATEMENT: Testified on HB 148 EDDY JEANS, Manager School Finance Section Department of Education 801 West 10th Street, Suite 200 Juneau, Alaska 99801-1894 Telephone: (907) 465-2891 POSITION STATEMENT: Testified on CSSSHB 148(HES) SUSAN HOPE P.O. Box 842 Barrow, Alaska 99723 Telephone: (907) 852-4734 POSITION STATEMENT: Testified on CSSSHB 148(HES) NANCY NICOLOS P.O. Box 385 Barrow, Alaska 99723 Telephone: (907) 852-2162 POSITION STATEMENT: Testified on CSSSHB 148(HES) WALTER COOK, President Barrow School Advisory Council P.O. Box 1057 Barrow, Alaska 99723 Telephone: (907) 852-4778 POSITION STATEMENT: Testified on CSSSHB 148(HES) ROSEMARY REEDER, Coordinator Soldotna Community School Lead Coordinator, Kenai Peninsula Borough School District 426 West Redoubt Avenue Soldotna, Alaska 99669 Telephone: (907) 262-6768 POSITION STATEMENT: Testified on CSSSHB 148(HES) CARL ROSE, Lobbyist Association of Alaska School Boards 316 West 11th Street Juneau, Alaska 99801 Telephone: (907) 586-1083 POSITION STATEMENT: Testified on CSSSHB 148(HES) JOHN CYR, President National Education Association of Alaska, (NEA-Alaska) 114 Second Street Juneau, Alaska 99801 Telephone: (907) 586-3090 POSITION STATEMENT: Testified on CSSSHB 148(HES) LELAND DISHMAN North Slope Borough School District P.O. Box 169 Barrow, Alaska 99723 Telephone: (907) 852-5311 POSITION STATEMENT: Testified on CSSSHB 148(HES) JOHN HOLST, Superintendent Sitka School District P.O. Box 179 Sitka, Alaska 99835 Telephone: (907) 747-8622 POSITION STATEMENT: Testified on CSSSHB 148(HES) ACTION NARRATIVE TAPE 97-26, SIDE A Number 0000 CHAIRMAN CON BUNDE called the House Health, Education and Social Services Standing Committee meeting to order at 3:05 p.m. Members present at the call to order were Representatives Bunde, Porter, Dyson, Kemplen and Brice. Representative Vezey arrived at 3:10 p.m. and Representative Green arrived at 3:32 p.m. This meeting was teleconferenced to Barrow, Kenai, Valdez and an offnet site. SSHB 148 SCHOOL FUNDING ETC./ CHILD CARE GRANTS Number 0020 CHAIRMAN BUNDE announced the first item on the agenda was SSHB 148, "An Act relating to the public school funding program; relating to the definition of a school district, to the transportation of students, to school district layoff plans, to the special education service agency, to the child care grant program, and to compulsory attendance in public schools; and providing for an effective date." He said Dr. John Augenblick would join the committee via teleconference. Dr. Augenblick assisted the Alaska Board of Education when they put together the foundation formula rewrite. He is a nationally known consultant, based in Denver, who has assisted state Departments of Education in Alabama, Alaska, Maine, Minnesota and Ohio. Eddy Jeans, Manager of School Finance, Department of Education, was also scheduled to testify. The chair wanted to walk the committee and the audience through the bill and then have Dr. Augenblick and Mr. Jeans address any questions. He referred to a committee substitute, version O-LSO605\B. Number 0233 REPRESENTATIVE BRIAN PORTER made a motion to adopt the committee substitute, version O-LSO605\B. There being no objection, proposed CSSSHB 148(HES) was before the committee. Number 0246 DR. JOHN G. AUGENBLICK, President, Augenblick & Myers, testified next via teleconference from an offnet site. Number 0293 CHAIRMAN BUNDE explained that a number of people have been concerned about a rewrite of the foundation formula. The committee's goal is to try to simplify the formula so that the general public has a bit more ownership; so that they can see the connection between students and dollars as well as making sure that state funding supporting education is distributed fairly. He asked Dr. Augenblick to begin with Section 1 and walk the committee through the bill. Number 0367 DR. AUGENBLICK stated that this bill does what many other states are also trying to do; providing an adequate and equitable amount of money for education. This goal is tricky and there is a lot of disagreement about how best to achieve it. He supported this bill because its approach takes advantage of the best knowledge, based on experiences around the country, of how this ought to work. Section 1 says funding will be provided to the school districts based on the number of pupils that they enroll. These students are enrolled in the district to be served as opposed to alternative ways of counting those students. In addition, language suggests that these pupils will be counted in a variety of different ways to reflect the various costs that we expect the school districts will face in serving them. These costs involve things found in other states, plus some unique costs related to Alaska. DR. AUGENBLICK explained that the language defines what extra money will be available to students who participate in special education. Additional money is provided to those students participating in the gifted and talented programs. Additional money is also provided based on characteristics of individual communities based on the knowledge of what costs are likely to be incurred. The need for an additional study is expressed in the bill. This study would help set more accurate numbers, which might be used in future years. Number 0543 CHAIRMAN BUNDE confirmed that Dr. Augenblick was referring to the area cost differential. All the iterations of the foundation rewrites - the Senate versions, the Governor's bill and CSSSHB 148(HES) - address updating the area cost differential. Senator Wilken announced this morning that this study is a crap shoot. The state will commission a study and then the state will have to live by the results; there might be winners and losers, but there are no preconceived notions going into the study. Number 0590 DR. AUGENBLICK expressed that he likes to think this creates place holders for factors that are yet to be developed. The place holders have numbers assigned to them based on prior history. He expected that the numbers produced, in the future, will be somewhat different but probably not terribly different. He didn't feel the risk to be so terrible that it should stop the legislature from moving ahead with legislation. A big shift is being made in education, a shift that most other states have made. This shift goes from a unit based funding system, units of children, to one that is student based. This shift represents a trend that almost every state has followed. Certainly no state has gone the opposite way; from a per student approach to a unit approach. DR. AUGENBLICK stated that Wyoming was found to be unconstitutional a year or so ago in their funding mechanism. In June, the Wyoming legislature will meet and talk about making the shift to per student funding. Other states have made this kind of change in the past few years. Nebraska, Louisiana, Mississippi have made this shift. Most states have found it to be productive. Provided that Alaska does what is included in this bill; to recognize that on one hand you want to treat every student as if they are the same, but to also recognize those students have different needs based on their own characteristics. Some students participate in programs which are more expensive than the regular programs such as live-in programs where the cost is higher. This bill tends to address all of those things, it does it appropriately. DR. AUGENBLICK said, like legislation in other states, this bill defines the foundation program. The bill has an expectation that school districts should have a certain amount of revenue based on the numbers of students they serve and on the characteristics of those students. The bill also expects local school districts to make a contribution. He added that other states have also included this provision. Education is not a fully funded state system, there is an expectation that local school districts will make a contribution. The contribution by the local school districts is defined in the bill, with a little change over time. Number 0771 DR. AUGENBLICK stated the other thing that this bill does is to protect the school districts during the transition. If the school found they would get less money under this formula than they might have received under the current formula, then the bill says that the school will be protected in the short term. After five years of this protection that money will not be provided, the school districts will be on the formula as defined in the bill. This is a procedure which other states have used, they recognized that it is unfair to expect the school district to be able to respond immediately to the kind of change this bill creates. However, the expectation is that the school district will be able to make this change in just a few years. From his perspective, this is a well designed bill. This bill is consistent with the best practices of other states, philosophically it is strong. One way in which to evaluate the bill is by its impact on individual school districts and communities. The legislature will have to determine its impact in order to feel comfortable with the results. Every other state has gone through the same process. Number 0872 DR. AUGENBLICK said a bill like this needs to have a strong philosophical underpinning, there has to be a reason why it does what it does. He felt this bill had this strong philosophical underpinning. Secondly, this bill had to be supported by technical work of the sort that the Department of Education (DOE) has done so that the numbers which drive the formula are based on the best knowledge that we have of what works in Alaska. Finally, the bill has to pass a political test which is based on the legislative judgement. The legislature has to decide whether or not the philosophy is good and the technical work is strong so that the political work can be done to see that it happens. Number 0920 DR. AUGENBLICK felt it was a well designed bill. Other states do many pieces of this bill. The bill is unique in that it considers factors specific to Alaska. Number 0943 EDDY JEANS, Manager, School Finance Section, Department of Education, addressed the issue of area cost differentials. He said CSSSHB 148(HES) assigns area cost differentials at a funding community level. When area cost differentials are studied, the DOE will consider the cost of operating a school. Currently the foundation area cost differentials are assigned to a school district and reflect the cost of operating in a district. He explained that CSSSHB 148(HES) takes the 23 differentials in statute and recommends that they be reduced down to seven. Number 0993 CHAIRMAN BUNDE addressed the past concept of funding communities and the proposed concept of funding schools. He thought that if the state is going to have area cost differentials based on each school, there would be more area cost differentials. Number 1015 MR. JEANS answered that there are fewer variables. Currently there are 23 variables and CSSSHB 148(HES) would reduce it down to seven variables. Number 1027 CHAIRMAN BUNDE referred to page 5, line 30, this language suggests that students be counted on October 15, every year. He asked if there was an advantage or disadvantage to counting more than once a year. Number 1049 DR. AUGENBLICK stated that this issue needs to be addressed by the legislature. More and more states have moved away from a system of counting students every day. People found this task burdensome and did not create a significantly more accurate number than just counting students once a year. Some states have a system where they do a student count two or three times during the year. Over the course of a year, the student count changes enough that it is appropriate to do it more than once. Typically the second semester has a lower number. Counting one time in the fall might result in more students being counted then actually are being served throughout the school year. The only adjustment he suggested would be to do a student count two, three or maybe four times. He certainly would not suggest counting more than four times. Number 1121 MR. JEANS referred to that section of the statute dealing with student count estimates. These estimates are used by the DOE to prepare the foundation budget, they are not the numbers on which the actual foundation payments are based. The foundation payments are based on an actual student count occurring on the fourth Friday in October. Number 1146 CHAIRMAN BUNDE commented that in his experience, in the urban settings where people are more transient, the student population is lower in the spring than it is in the fall. He didn't intend to suggest that the students should be counted every day. He proposed a count in the fall and a count in the spring. Number 1167 MR. JEANS directed the members' attention to page 8, which requires a count on the 20th day in October and an optional count on the second Friday in February which is also a 20 day count. These counts are consistent with the current statute. He referred back to the projections and said that districts have indicated that the October 15th date is difficult to meet. The schools would prefer to wait until they completed the current year count to provide DOE with estimates for the next year. MR. JEANS continued that delaying the count would be a problem for DOE because of budgeting time constraints, but the department could work with this issue. He reiterated that there is a required count in October and an optional count in February if it provides the school with additional revenue. Number 1201 CHAIRMAN BUNDE clarified that the schools count twice, but if it is to the school's advantage they only list their count once. Number 1231 MR. JEANS verified that the schools count twice if it is to their advantage. Number 1239 CHAIRMAN BUNDE asked why there was an option of only counting once. Number 1242 MR. JEANS answered that some school districts will see an increase in enrollment and this second count provides them with an opportunity to receive additional funding. Number 1253 CHAIRMAN BUNDE referred to page 7, starting at line 8, the percentage of a school's operating budget which should be invested in the instructional component. Another way to express this language is that it keeps the administrative overhead low. Number 1286 DR. AUGENBLICK said this is an unusual component. A few states, including Louisiana, have this language on the books. The language attempts to ensure that the majority of the money is focused on instruction and a minimal amount is spent on administration. Most places suggest that there isn't a large variation among school districts. The schools tend to spend most of their money in instruction. This section of the bill isn't a problem if it doesn't create a burden for DOE or anyone else to collect and verify the data. An additional area of concern would be the smallest school district or school community which typically spends a higher amount on fixed costs; administration, lighting and building maintenance. He could not answer whether or not 60 percent was enough for them to maintain those costs. He reiterated that this language is not typical in regards to what other states are doing, but it was not a problem if the legislature felt it needed to be included in order to ensure that districts spent most of their money on instruction. Number 1370 CHAIRMAN BUNDE clarified that Dr. Augenblick was aware of the single site situation in Alaska. Number 1376 MR. JEANS said there used to be a similar statute, a 55 percent instruction requirement, which he believed was repealed in 1987. The DOE collected information to compute this measurement to ensure that districts met this requirement. He pointed out that one school district, on a annual basis, could not meet the 55 percent and through DOE sought waivers before the state Board of Education. Number 1402 CHAIRMAN BUNDE asked what would have happened if the waivers had not been granted. Number 1405 MR. JEANS could not respond to the question as waivers were always granted. Number 1416 REPRESENTATIVE TOM BRICE asked if there were any provision for waivers in CSSSHB 148(HES). Number 1427 MR. JEANS answered yes, in Section 14.17.520 (c), where it says the commissioner shall review the annual audits and then the state Board of Education could provide a waiver. This language continues down into subsection (d), line 24. Number 1464 CHAIRMAN BUNDE said Section 3 of CSSSHB 148(HES) dealt with definitions. He asked Mr. Jeans if he wanted to make any comments on Section 8, dealing with the transportation of students. Number 1483 MR. JEANS explained that CSSSHB 148(HES) moves the current method of reimbursing schools for pupil transportation services into the foundation program. The DOE has developed place holder adjustment factors for transportation costs. These factors were developed on district pupil transportation costs, based on a percentage of their total budget. The intent is to direct those monies to districts providing those services, as opposed to just distributing money statewide. The DOE will continue to do bus safety inspections and pass drug and alcohol tests for bus drivers. Number 1545 MR. JEANS explained that the remaining sections of CSSSHB 148(HES) are clean-up sections. The language addresses statutory references to the foundation aid, average daily membership and other terms. The language is cleaned-up to be consistent in the legislation. Number 1580 REPRESENTATIVE BRICE asked, to what degree, other states' foundation formulas require a strict accounting of funds spent at the local level on special education and gifted and talented programs. Number 1597 MR. JEANS answered that other states have categorical expenditure requirements for special education. Currently the state of Alaska does not have that requirement, although the state provides categorical revenue for those services. Under CSSSHB 148(HES), there would be a flat 20 percent allocation to cover all categorical needs; special education, bilingual, vocational education and gifted and talented. Number 1617 REPRESENTATIVE BRICE asked how the transportation component of CSSSHB 148(HES) would affect the Fairbanks district which buses private students. Number 1651 MR. JEANS answered that when transportation adjustments were developed, the total cost of providing transportation was taken into the percentage of the total budget. Currently, Fairbanks is being reimbursed for routes that have some private school students on them and this situation would have been included in that factor. Number 1667 REPRESENTATIVE PORTER suggested that, in future committee meetings, someone take a blackboard and take this formula from point A to point B. Number 1693 REPRESENTATIVE FRED DYSON discussed the difficulties of addressing a bill which only lists the paragraphs of the foundation formula being addressed in CSSSHB 148(HES). He asked if someone could say how the philosophy and the general approach was being changed. He understood that the formula moves from units to actual students. Number 1733 CHAIRMAN BUNDE said the committee has not had a side by side comparison of the existing formula and this proposed formula. Number 1743 REPRESENTATIVE DYSON asked that if someone could summarize what CSSSHB 148(HES) aims at changing, then these details would make more sense. Number 1760 CHAIRMAN BUNDE referred to a chart which states the differences between the current formula, SB 36, the Governor's bills, SB 146 and CSSSHB 148(HES). Currently there is no spread sheet which will state what will happen to individual districts. Number 1802 MR. JEANS referred to the chart, under SB 146, second block down which lists "categorical revenues" as 120 percent and clarified that it is a 20 percent allocation above the base as is the previous two columns. He suggested that this is a typographical error, it was down in the next block as well. Number 1825 REPRESENTATIVE BRICE clarified that SB 146 is the same as CSSSHB 148(HES), SB 85 and HB 126 in those situations. Number 1837 MR. JEANS then reiterated that Section 9 is clean-up language. It refers to AS 14.11.008(b), the school construction statute. On page 12, the bill lists the district's participating share based on the full value per average daily membership (ADM). This language spells out average daily membership as opposed to listing it as ADM, cleans up the references to assessed value, when it is referenced in this bill. Number 1888 REPRESENTATIVE BRICE asked if Dr. Augenblick could explain the background behind providing or not providing sideboards in legislation to ensure that school districts across the state spend their special needs money in those areas. Number 1945 DR. AUGENBLICK said there are two philosophies concerning categorical or special needs programs. Some believe that these things ought to be done as a block grant type of program; where somebody determines how much more money a particular program might cost through a formula procedure, making sure that money is provided and then let the school districts or the recipients of that money spend it in whatever way they feel is most appropriate. Those recipients may decide that they don't need to spend as much money as they receive from the formula or they may decide that they need to spend more. This philosophy is to let the school districts make those decisions because they are the ones closest to the services being provided. This philosophy is appropriate as long as the legislature can hold the school districts accountable, not so much for how they spend their money, but for what is produced by that spending. Those districts should be accountable for the performance or the improvement in the performance of the students who are supposed to benefit from that money. DR. AUGENBLICK stated that the other philosophical view is that it might be difficult to hold the school districts accountable in that way. It is important for the state to direct the districts to spend some portion of that money for a specific purpose. Some states, when they give an extra amount of money to provide a particular kind of service, monitor the school district to make sure that they are spending 85 to 90 percent of it in that way. Typically the people who have children in those programs are interested in making sure that money is available and is spent for those purposes. It is a matter of how you hold the recipients accountable; for what is produced or how they spend the money. Number 2033 REPRESENTATIVE BRICE asked the philosophy of CSSSHB 148(HES) regarding those questions. Number 2057 DR. AUGENBLICK understood that this bill would provide the block grant funding. The state is providing additional money, in several different categories, for programs or characteristics which make the cost of providing those services different. The bill does not require that this money be spent in any particular way. Number 2080 MR. JEANS clarified that this interpretation of CSSSHB 148(HES) was correct. This bill provides a 20 percent allocation for special needs; special education, bilingual, vocational education and gifted and talented. The bill pulls the intensive needs category of special education out of this allocation. Students in this category require services which have a high cost attached to them. There are approximately 1,200 of these intensive students statewide. The bill calls for an allocation of $22,500 per intensive needs student. Number 2103 DR. AUGENBLICK said it is also true that, in some cases, those children and programs are protected by a variety of laws and regulations. The school district can't chose whether or not to provide the service, they are mandated to provide them. Number 2117 MR. JEANS verified that there are federal laws which govern the special education process through the individual educational plan (IEP) and the services provided. Number 2125 CHAIRMAN BUNDE commented that CSSSHB 148(HES) tries to remove some of the past incentives for creative student categories such as listing the entire band as gifted. Number 2133 REPRESENTATIVE BRICE asked who was going to determine intensive needs versus special needs and how does the legislature ensure that there is a consistent applicability across the state. Number 2159 MR. JEANS said there are definitions of the different categories of special education in regulation and these are possibly located in statute as well. The DOE has special education specialists that go to individual school districts to determine that those students are properly classified. This bill would reduce their scope so that the specialists would have to focus on intensive services as opposed to the entire program. Currently there are four different categories in special education which DOE provides funding for; gifted and talented, resource, self contained and intensive. He understood that there was a very fine line between resource and self contained. The field reviews provide opportunities for the DOE specialists and members from the school districts to discuss the classifications. Number 2198 REPRESENTATIVE PORTER asked, through the DOE assessment of these classifications of students, if they would allocate to a specific school or district, based on the volume of kids that they had, an additional 20 percent. Number 2228 MR. JEANS responded that the allocation would be a 20 percent addition above the district average daily membership; schools would receive an allocation based on that percentage. Currently schools have to label children in order to generate revenue. This bill, by providing a block allocation, would allow districts to provide some early intervention as opposed to waiting until the child actually needs services. TAPE 97-26, SIDE B Number 0000 REPRESENTATIVE JOE GREEN presented a situation where student A is a special education student at school one and moves to school two. He asked if the money would move with that student or has that money been allocated by a block grant to school one. Number 0041 MR. JEANS said the allocation is still to the school district. The responsibility of allocating revenues to individual schools lies with the school district. Number 0057 REPRESENTATIVE BRICE asked how the legislature could be sure that state dollars, dedicated to special education needs, are making it into classrooms. He also asked how the legislature could be sure that students in an inclusion program would have an aide with them throughout the day. Number 0125 MR. JEANS said the school districts have federal requirements. Currently, state requirements mirror the federal laws which govern special education and those services. This bill provides districts with a revenue source to address the four categories of need. Number 0135 CHAIRMAN BUNDE commented that as an educator he felt that some days the weight of paper equaled the child's weight. Number 0149 REPRESENTATIVE J. ALLEN KEMPLEN asked if the 20 percent allocation is the upper limit, in terms of what could be provided with the proposed change. Number 0162 MR. JEANS answered that it is a flat allocation. Number 0169 REPRESENTATIVE KEMPLEN asked him to provide an example using a particular school district. Number 0178 MR. JEANS said that, through the current foundation program, there are school districts that are generating revenue through categorical needs; special education, bilingual, vocational education and gifted and talented. Some schools only receive 9 percent of their total foundation funding through these categories and some districts receive 27 percent. This bill attempts to provide everyone with the same level of resources for the special needs category and allow flexibility, in the district, to address the needs the way they see fit. Number 0219 CHAIRMAN BUNDE explained that this funding excludes intensive needs. Number 0225 REPRESENTATIVE KEMPLEN questioned why certain districts only had 9 percent in this category. Number 0239 MR. JEANS answered that in those school districts only 9 percent of their funding came from identifying students for special needs. This situation could be interpreted that either the schools received sufficient funding through their kindergarten through twelfth grade allocation or the schools didn't have the specialists on staff to aggressively identify those students with needs. Number 0273 REPRESENTATIVE KEMPLEN wondered if the school districts with specialists, who were good at identifying the students for particular categories, had a number closer to 27 percent. He suggested that the fewer specialists on staff, then the fewer students who would be identified as having categorical needs. Number 0310 MR. JEANS said this is not necessarily true. He did not mean to imply this situation. He meant to say that there is a variance in revenue which is being allocated for special needs; the three categories of special education, bilingual categories and vocational education. This CSSSHB 148(HES) proposes to level the playing field for all districts. Number 0339 CHAIRMAN BUNDE continued, CSSSHB 148(HES) attempts to simplify the formula, creating a block fund for special needs with the exception of the intensive needs category. This funding situation would allow the schools to put all their money into bilingual education if they wanted, as long as they were in the federal parameters. Number 0358 REPRESENTATIVE PORTER clarified that the state is going to give every school district an additional 20 percent to cover these kind of things. Number 0386 REPRESENTATIVE GREEN referred to the category of special education which can range from capable to less capable learning styles. He asked if this block grant would allow each of the school districts to determine how much goes to each particular student. Number 0408 MR. JEANS answered that the school districts have to provide the services called for in the student's IEP. He presented a situation where one student might only cost the district a couple of thousand dollars to fulfill the resource requirement and the other student might cost you $3,000. The allocation of funding, through the current foundation program, is the same. The districts have to address the needs of the students, as it's identified in the IEP, regardless of how much revenue they generate. Number 0454 REPRESENTATIVE GREEN asked if a block grant is given asking the school district to service all of the listed categories, yet there is a mandatory requirement to service students who have an IEP. Number 0515 MR. JEANS answered that currently there are variances in the levels of services provided within the categories. The school districts are required to provide services identified in the IEP, regardless of the costs. The current funding formula will provide a certain level of funding without making an adjustment for variances within that special needs category. The school districts are already providing those services, as needed, in order to allocate resources and will continue to do so under CSSSHB 148(HES). Number 0556 REPRESENTATIVE GREEN asked if each group would have a set amount, even if there are more students in one area and less in another. Number 0563 MR. JEANS said this was correct. Number 0568 REPRESENTATIVE KEMPLEN clarified that those school districts who have presented a 27 percent need will now face a reduction of 7 percent to bring them to the 20 percent level. Number 0586 MR. JEANS said yes, but it does not translate straight across to a 7 percent reduction. Number 0604 DR. AUGENBLICK made some comments before he went off line. He felt the questions being asked were good ones. He said there are a variety of ways of addressing the questions. If the legislature felt that pieces of this system might not do exactly what they want them to do or they know that there are problems which might be better addressed, then there are alternatives for those pieces. He urged the legislature to try to stay within the overall framework provided in CSSSHB 148(HES). This bill provides a base amount for every student to ensure that all students are treated equally. The amount is adjusted to account for the various student characteristics. If one piece of this legislation doesn't work particularly well, then he assured the legislature that it could be change and still fit within the overall context of CSSSHB 148(HES). He did not feel that the questions being asked indicated that the bill was wrongheaded. He assured the committee that the questions could be addressed within the context of the bill. The committee should not proceed with the bill if there is a piece of it that needs to be changed. DR. AUGENBLICK supported the concept of CSSSHB 148(HES). He said it was a difficult change, but he hoped the legislature would make it. The legislature and the people providing these services will be a lot happier once it is done. Number 0721 CHAIRMAN BUNDE asked about PL-874 money. Number 0735 DR. AUGENBLICK answered that this is an important question. He stated that the chair was referring to federal money which is sometimes referred to as impact aid. This money has caused problems because of the federal government restrictions. These restrictions are put on the money despite the fact that it is a deteriorating amount. The federal government puts restrictions on the way you can count that money. He understood that this situation is no longer a problem. The Alaska DOE and other states have spent a ridiculous amount of time trying to appease the federal government so that the state can spend the money. He understood that the formula simply doesn't require this any longer. Number 0794 MR. JEANS verified that Dr. Augenblick was correct. The formula, presented in CSSSHB 148(HES), does not consider impact aid funds in determining the state's allocation to school districts. Under the current formula, the DOE considers how much impact aid funds the school districts receives in order to determine the amount of the state allocation. The DOE has to meet the federal disparity test when they do this. The federal disparity test says that the DOE cannot have more than a 25 percent disparity between our fifth and ninety-fifth richest to poorest districts. Legislation in 1994, changed that disparity standard to 20 percent, which the state of Alaska was going to have problems meeting. Legislation, SB 244, was pursued to address that requirement last year. This October, Congress amended the impact aid statute and put it back at 25 percent. This percentage is good for a two year period, after that the program will be reauthorized. At that point, he anticipated that Congress would attempt to lower the amount again. The DOE felt this was a step in the right direction to remove impact aid from the equation. Number 0873 CHAIRMAN BUNDE stated that the local contribution, using Anchorage as an example, was limited. More money could not be given, even if you wanted to do it. He said that Anchorage never met their limit, but he believed that both Fairbanks and Kenai did. This requirement was put in place as a result of the richest district giving more money to their school which created a disparity between schools. CHAIRMAN BUNDE explained that, in this bill, the PL-874 goes directly to the district. In the old bill, the PL-874 came directly to the state and then was redistributed which created certain restrictions. Number 0925 REPRESENTATIVE BRICE asked for an explanation of the Ohio situation where they rewrote their foundation formula to get out from the federal disparity test. This rewrite was taken to court and the court ruled that the state had to meet a certain level of disparity. Number 0954 DR. AUGENBLICK said the Ohio system was found to be unconstitutional by a lower court a couple of years ago. There were two issues involved; the disparity between the school districts and the adequacy issue of whether or not there was sufficient money to do what they wanted to do. The lower court decision was appealed to a mid-level court which ruled that the system was constitutional about a year ago. This decision was then appealed to the supreme court of Ohio, who ruled a couple of weeks ago. The supreme court again ruled the system to be unconstitutional. These decisions were not based on federal money, but on state and local money. The essence of that decision is that there was insufficient money in the system to accomplish the goals that the state constitution established. The language of the Ohio constitution reads, "a thorough and efficient education". In addition, the Ohio State Board of Education adopted certain objectives which were unable to be met by the allocated money. The court has stayed this order for one year, giving the legislature until the end of March 1998, to come up with a new system and to assure the court, which will retain jurisdiction over that case, that sufficient money is provided. DR. AUGENBLICK stated that the Ohio court case also spoke to the issue of capital and building. It identified the difference between estimated needs, which the state itself determined to be $10 billion for facilities, versus the $1 or $2 billion dollars that were actually being put into the system. The court ruled that the procedure was fine, but the amount of money was insufficient. Ohio is going to have to figure out how they are going to come up with a sufficient amount of money to meet the court's requirements. Number 1101 SUSAN HOPE testified next via teleconference from Barrow. She is a parent who has two children enrolled in the Barrow schools. She opposed any bill which would reduce state foundation formula funding of the North Slope Borough District. The funding helps the schools pay for staff, teachers, programs, utility operations so that her children can receive a complete education to compete with students on a statewide and worldwide level. State funds provide one-third of the education funding in the North Slope. If any one of these foundation formula funding bills were passed by the legislature, then her school district would be forced to eliminate programs. MS. HOPE said the school is the center of the community and that healthy living opportunities would not be supported or provided without state funding. Bare bones education would be the only goal the school district would be able to accomplish. The school district would be forced to deny school access. With less operating dollars from the state to provide basic education, the North Slope community would be without alternatives for healthy living and community assemblage. She stated how important it was for a child to learn community responsibility and ownership. Community meetings are held in schools, this is the main link a child, in rural Alaska, has to learn and develop social skills and community responsibility. The schools in Barrow are truly dual purpose, carrying both social and academic responsibilities. She urged the committee to help all students by not approving, considering or supporting this bill as it will cut $2.5 million to $4 million from the North Slope Borough school district. She believed that the solution was not with tampering with the formula funding, but in addressing the lack of statewide funding for education. Number 1312 NANCY NICOLOS testified next via teleconference from Barrow. She is a parent and has three children enrolled in school. She commended the committee and Representative Bunde for their work on the foundation formula funding issue. However, she did not feel that CSSSHB 148(HES) was the issue. The North Slope Borough and its school district are already paying their fair share. For every dollar in state money, the borough supplies approximately $3.00 in order to provide the North Slope students with adequate funding for education. The North Slope Borough and municipality are facing decreasing municipal revenue sharing which further increases the burden upon the taxpayers. MS. NICOLOS spoke with the business director at the school district who estimated that the amount of lost funding for the North Slope Borough, should HB 148(HES) pass, is between $2.5 million to $4 million. She did not feel the North Slope should be penalized substantially by such a dramatic cut in funding, nor did she understand the justification in taking this money from their students to give to other students. She thought the legislature might be overlooking the basic fact that education is not adequately funded. She said the problem is not solved by shuffling the same deck and redistributing it. She asked the committee to address the issue of why their constituent's children were more important than her children. Number 1380 CHAIRMAN BUNDE did not feel that CSSSHB 148(HES) would be depriving the North Slope Borough. The committee would be getting some spread sheets to work out the amounts. He suggested that the witnesses might be using earlier versions of the bill which did not contain the current information. Number 1412 WALTER COOK, President, Barrow School Advisory Council, testified next via teleconference from Barrow. He has heard people mention how impressive the North Slope Borough's facilities are. He believed the facilities are what they are because the North Slope voters have consistently taken a stand for education. The North Slope Borough school district facilities are community centers, providing activities for rural villages and Barrow. The schools were not built to attract people, they are impressive because of the commitment to education and to lessen the harsh environment. The school district delivery system, computer network and telecommunications system were not derived from the operating budget, but from capital project improvement ballot issues. This technology is needed to provide instruction to students across vast distances, saving money in the school district's operating budget. This bill proposes to take funding from the operating budget because the North Slope voters strongly believe in education. He asked if it was justified to discriminate against rural communities. MR. COOK said the foundation formula issue is a funding problem, not a disbursement problem. It is not morally right to take funding from the North Slope Borough district. He felt it was important for the legislature to uphold the constitution which clearly supports maintaining education. He did not understand how the legislature thinks the North Slope can maintain a reasonable education system with reduced state funding. Taking millions of dollars a year away from the budget is unwarranted, especially in a year when citizens can identify excessive state funds. As a father of children in the schools and a voter who understands the importance of education, he resented the notion of redistributing education dollars. He mentioned the state resources received from the North Slope. Number 1570 CHAIRMAN BUNDE asked the witnesses not to confuse CSSSHB 148(HES) with the Senate version requiring a significant contribution from the North Slope Borough. He added that the constitution mandates that the state provide a basic education and what constitutes this definition is debatable. He did not think that community centers entered into basic education. Number 1587 ROSEMARY REEDER, Coordinator, Soldotna Community School, Lead Coordinator for the Kenai Peninsula Borough School District, testified next via teleconference from Kenai. She said small cities such as Soldotna, Homer and Seward have a special need for community education programs. Lay cultural, academic as well as recreational activities take place in the early morning, evening and weekend hours. The community school budget is based on a portion of the foundation formula. She asked the legislature to serve the students and the communities in which they live. Number 1628 CHAIRMAN BUNDE stated that the committee intends to do what they can for the good of the students. The committee is not out to penalize any students in the state of Alaska. Number 1642 MR. JEANS explained that under CSSSHB 148(HES), the required local effort is 35 percent of the district's need as it is in the current foundation program. Preliminary runs indicate that it would reduce the state allocation to the North Slope Borough, in the first year, by approximately $1.5 million out of a total budget of $11 million. Number 1677 CARL ROSE, Executive Director, Association of Alaska School Boards, presented an equation. He said the formula takes the average daily membership (ADM) multiplied by the adjusted student allocation. The adjusted student allocation takes into consideration the 1.20 factor for special needs, transportation, bilingual, bicultural and can also be adjusted for the $22,500 dedicated to intensive need students. The equation is then multiplied by the area cost differential plus local contribution and this equals the aid to schools. MR. ROSE presented a second equation of the ADM multiplied by the stated base allocation multiplied by the 1.20 factor for special needs plus the intensive needs students at $22,500 multiplied by the area cost differential plus the local contribution. MR. ROSE said CSSSHB 148(HES) deals with change, it is the magnitude of the change which must be examined. Back in 1987, when the foundation formula was last revisited, some of the same basic principles were kept; the unit value, area cost differentials, the "categoricals" were handled in a categorical manner. In 1987, there was one different principle, the addition of an equation for single site schools. Since 1987, the state has been mitigating this issue on an annual basis, with the exception of one year. This bill, CSSSHB 148(HES), proposes a unit to a per student ADM. Using the unit as a factor provided what is known as a front-end load. Small schools first qualified as a funding community for two instructional units and then calculated the amount the students generated in terms of instructional units. Small schools around Alaska will lose a front-end load when the funding is calculated per student. If we take a look at the ADM, then we need to look at those schools because their funding could be reduced by at least one-half. He felt the numbers would show a tremendous decline. Number 1815 MR. ROSE explained that some school districts in the state are going to be devastated by this formula. Alaska is diverse. He referred to the Lower Kuskokwim which identifies and serves children who require special education, bilingual and bicultural. This populace, to a great degree, speaks Yupik. A large portion of their pupils speak Yupik as a first language and in their early years they are identified as needing special education, this number decreases as they are mainstreamed into the system. Going to a 20 percent figure for special education needs will impact the Lower Kuskokwim. There are other areas of the state which also face this same issue. Number 1862 MR.ROSE did not feel that $22,500 would be enough to mitigate the costs for intensive needs students. He understood the desire to not identify too many students. He felt that if the state were more congruent, then it would be a good policy. The area cost differentials will be changed from measuring school districts to a per site unit method. He raised these issues to show how CSSSHB 148(HES) will provide more money to some school districts at a tremendous cost to others. MR. ROSE said the 53 school districts have suffered under the weight of a 30 percent loss in buying power. The foundation formula that was implemented in 1987 was never designed to absorb that kind of pressure. The Ohio issue of adequacy is the same type of problem which the state of Alaska has, but is not acknowledging. We are moving that part of the problem off the table and are reshuffling the deck. The committee needs to address the hold harmless portion of this bill which will hold everyone harmless in the first year, but will discontinue in five years. Number 1950 MR. ROSE raised the issue of the 60 percent requirement. There are districts in the state which operate in the extreme arctic regions or are in isolation; they have high transportation costs and probably will not be able to meet the 60 percent figure. Many of those schools could not meet the 55 percent figure. The association has not taken a formal position on CSSSHB 148(HES) because they are trying to think outside of the box. If the formula is going to change, then the issue which needs to be addressed is adequacy. MR. ROSE mentioned Dr. Augenblick's testimony. He agreed that there is a strong philosophical underpinning for this change and he agreed that a high level of technical support will be needed. He expressed some concern over the political will to do this if the effort is going to be inconsistent with the past. The transition and change are going to be dramatic, but if the state can work to make this change for the right reason which is to improve the quality of education then it will be worth it. He said the issue has to revolve around adequacy and equity in distribution. Number 2016 CHAIRMAN BUNDE mentioned that adequacy is a discussion which could continue for a long time. In the Alaska Senate it was suggested that the verbiage be changed from school need to school support. He did not feel that there was any amount of money in this state that could exceed school needs, but there is a rational level of school support which can be arrived at financially. Number 2032 REPRESENTATIVE DYSON appreciated his explanation. He asked how his association felt about the quality schools initiative. Number 2050 MR. ROSE answered that his association supported the quality schools initiative as it is contained in the Governor's bill. He stated that budgets are built on a cut scenario. Many of the things listed in the quality schools initiative are things which the school districts are struggling to do right now. The issue comes down to quality, how do schools operate and provide a quality opportunity. There is also the added pressure from the numerous mandates which the school district has to meet. He referred to a school administrator who handed him a grant application which last year was about a quarter of an inch thick, this year it is almost an inch thick. Administrators are asked to meet a lot of mandates. The quality initiative is seen as a way to focus the dollars onto specific things which aren't diverted away as a result of mandates. Number 2150 CHAIRMAN BUNDE mentioned that the quality school initiative incorporates an additional $24 million into the budget. Number 2111 REPRESENTATIVE PORTER asked if the resulting redistribution resulted in an inequity and in a redistribution of school funding, does his comment presuppose that it is now equitably distributed. TAPE 97-27, SIDE A Number 0000 MR. ROSE answered that CSSSHB 148(HES) redistributes additional money for some at the expense of everyone else. If you look at the harmless clause of this bill, there will be some 42 school districts being held harmless which is the first indication that money has been redistributed and the issue of adequacy has not been addressed. Number 0059 REPRESENTATIVE PORTER asked if the only bill he could support would be one that increased funding. MR. ROSE answered yes, they do look to increase funding for the purpose of cushioning some of the loss which has occurred over the last ten years. CHAIRMAN BUNDE suggested that ten years ago, far too much money was invested and that we are finally getting down to normal now. MR. ROSE disagreed with that comment. Number 0127 JOHN CYR, President, National Education Association of Alaska, (NEA-Alaska), said it was important to look at the history of educational funding in order to put it into some type of perspective. The purpose of education and, ultimately, the education funding bill is about children. If we forget that, if we look at it as just some kind of mathematical formula that moves money from A to B and we forget that we are dealing with children, then we've done the state a disservice. MR. CYR stated that in Alaska; 15 children every year commit suicide, 85 children die of homicides and unintentional injuries, 125 newborns die before their first birthday, 160 are born with Fetal Alcohol Syndrome (FAS), 580 are born with low birth weigh, 600 children are admitted for in-patient psychiatric care, over 1,200 babies are born to teenage mothers, almost 1,500 children will be arrested for felony offenses, 2,200 kids drop out of school, 3,500 are registered runaways or reported to the police as runaways, almost 4,000 kids are abused and neglected through verified reports, 10,500 preschoolers live below the federal poverty level, 21,000 children have no health insurance, 25,000 children receive Aid to Dependent Families and Children, over 30,000 children live in households with single parents and these are the children that attend Alaskan schools. MR. CYR explained that in the first year of the foundation formula, 44 percent of the state's operating budget was included in the education foundation formula. In 1970 and 1971 that figure dropped to 35 percent, in 1990 the figure dropped to 17 percent, in 1987 the current formula was developed setting the foundation formula at $60,000 and increased in 1992 to $61,000. In 1996, Alaska ranks last, of all 50 states, in resource allocation to education. After the rate is adjusted for inflation, Alaska ranks 50th in average salaries for education employees. This translates into larger class sizes and fewer class offerings. Alaska ranks 49th in advanced placement classes. The fact remains that a lot of money flows through the till and only a small percentage of it goes to the children. There is less attention spent on marginal students and there is inadequate technology in almost all of the schools. There is nearly a complete absence of academic and vocational counseling, an absence of drug and alcohol counseling, and an absence of counseling done for violent and aggressive children. He guaranteed that Alaska is paying a lot more for this later. It costs a lot more to house those children when they become adults and enter the penal institutions, than it does to work with them in our schools. Number 0483 MR. CYR addressed this bill and other bills addressing funding, his organization did not believe that funding could be based on moving dollars from rural children for the short term benefit of urban districts. They believe that funding must be based on the equalization of programs, not the equalization of dollars. A dollar does not do the same thing in Tuntutuliak as it does in Anchorage. They absolutely agree with every other education group that the foundation formula must be inflation-proof. Schools have suffered a 30 percent loss in the last few years regarding their buying power. Schools must be fully funded for student growth. Alaska is the fifth state in the nation when it comes to student growth. He referred to the growth of the Mat-Su district and concluded that their funding is eaten up by the cost of that growth. MR. CYR said his organization believes in the quality schools initiative. They believe that it is incumbent to fund for innovation. Research, incentive grants, new programs for violent students, parental involvement, technology, and other programs need to be funded in our schools and this cannot be done with the dollars provided. Number 0595 MR. CYR explained that the special education funding is a real problem. He appreciated the fact that CSSSHB 148(HES) provides a 20 percent increase. The problem with that amount is that there are mandates for special education and how it's funded. The mandate used to be called public law 94-142, but it is now called the individual disabilities education act. The federal government sits there and says; these kinds of kids must be served, an IEP must be put together, these kinds of things must be done to meet the needs of these children. The federal government throws a couple hundred dollars towards each child, but those programs are expensive. If the state is funding at 20 percent, it means that the other programs; vocational education, bilingual, regular education, will pay for the lack of state dollars put into special education. The foundation formula will rip money out of an already hard pressed classroom. Number 0680 MR. CYR stated that we must fully fund pupil transportation; whether it is done in the formula or done somewhere else. There has to be some long term study of the area cost differential. We need a clear picture of what it costs to deliver services around the state, not so that we can equalize dollars but so that the state can equalize programs to give kids the same kind of education. Number 0730 MR. CYR explained that an oversight and auditing provision is missing from all of these bills. The state must ensure that the money is used the way they want it to spent. He asked that the DOE be given the authority to audit the program. Number 0760 CHAIRMAN BUNDE felt the auditing and oversight suggestion was useful. He mentioned the situation of the administrator in the Aleutians. He agreed that CSSSHB 148(HES) doesn't increase the amount of dollars, it moves dollars around. There are 21 schools, 12 with fewer than 10 students and asked him if that was educationally sound. Number 0801 MR. CYR believed that, as a parent, you ought to have the right to send your child to a school in your community. He referred to a time when children were sent out-of-state to school. He argued that this education system worked, for a very limited number of children who went outside, got an education and came back. This system was a disservice to the vast number of kids who lived in rural Alaska. He felt there was an obligation to provide education to every child. He did not think that it was morally permissible for the state to identify small communities and rip the heart out of those communities. Number 0856 CHAIRMAN BUNDE commented that there have been consolidated schools throughout the United States for the last fifty years. Number 0867 CHAIRMAN BUNDE referred to the quality schools initiative where the Governor has identified $12 million to reward schools that were doing a good job. He asked why shouldn't the state take $12 million away from schools that are doing a lousy job. Number 0881 MR. CYR responded that this would suppose that you can quantify in some way a list of schools that are doing a lousy job and those that are doing a good job. He suggested that the state should look at those lousy schools to see why they are not doing well and see what needs to be changed, added or subtracted to those schools. This evaluation needs to be done on a school by school basis to establish some real criteria. If the state set a list of criteria, then he felt you could take away money. CHAIRMAN BUNDE asked if he could support closing a really bad school. Number 0937 MR. CYR would support making that school better. He did not know if accomplishing this would necessarily take more money. Number 0945 REPRESENTATIVE DYSON referred to his comment that Alaska was dead last in allocation as a portion of our total resources towards education, not dead last in per student expenditures. Number 0960 MR. CYR said he would be happy to run the numbers for him. The charts come out of the federal Department of Education which looks at the numbers in different ways. The percentage of state resources compared to the percentage of total dollars is what he was referring to in his testimony. Number 0987 REPRESENTATIVE DYSON clarified that he said Alaska was the poorest of the 50 states in what is paid to teachers. MR. CYR said yes, according to the average salary adjusted for inflation. REPRESENTATIVE DYSON clarified that this did not address regional cost of living figures. Number 1010 CHAIRMAN BUNDE asked if this figure dealt with teachers or all school workers. MR. CYR believed this was for teachers' salaries. In real dollars Alaska ranks fourth or fifth. He said the figures and how the percentages were calculated could be argued. REPRESENTATIVE PORTER asked if typically people would really judge the amount spent on education by the total resource potential of the state. Number 1092 MR. CYR felt there was a valuable comparison to be made using this figure. Number 1128 LELAND DISHMAN, North Slope Borough School District, referred to the 20 percent funding for special education. He did not feel that his district would be able to maintain programs, in many of the schools, based upon needs with this amount. His philosophy is that you cannot homogenize children. It does not work when you try to throw 27 percent in from one school district and 9 percent in from another school district. One school district can have a child with severe needs who will cost $100,000 a year to educate. This is a moveable number where we will need to have a cushion somewhere at the state level to assist any of the school districts. MR. DISHMAN commented that the 60 percent requirement on instruction will not be able to be met in many of the districts. In some districts, including his, they cannot do it because of the tremendous cost of maintenance and operation due to distances, fuel and electricity. He joined the ranks of people who say that the state has not adequately funded education. Basically, the state has decreased educational spending over the last ten years. The last time an adjustment was made to state foundation money, in 1988, the North Slope took a 42 percent loss in state money. In some of the bills being addressed, the North Slope would take an additional 100 percent. He said the figures listed in CSSSHB 148(HES) are more palatable. Number 1230 MR. DISHMAN said many of the school districts are doing the quality school initiative suggestions. If there is an opportunity to do those things in our schools, we should be morally obligated to do the very best that we can do with what is available. He said the North Slope schools are growing at a rate of 5 percent per year, over 100 new children show up every fall which equates to about four classrooms and four teachers. He said Ipalook is now recognized as being one of the largest elementary schools in the state of Alaska with about 810 students and anticipates having 840 or 850 students in 1997. Number 1288 MR. DISHMAN explained that he is here to show that the North Slope Borough School District is here in opposition to any type of funding program which will take away the opportunity for children in his district or anyone else's district to receive a quality education. He said redistributing dollars is not going to satisfy the need of the school district. As the amount of money is taken from other districts to solve the problems in the larger, urban districts it would have little impact on the urban settings, but would devastate smaller districts. MR. DISHMAN commented that some of the bills have looked at the North Slope in the context that they have more, so let's take it. He stated that rural schools have a high number of students at risk. Those students can be identified as those scoring in the bottom quarter of standardized testing. The North Slope has 25 percent in this category and many other districts have that many or more. Those children could be identified as going to a poor school, because the school is unable to educate them to the level of the bright students. MR. DISHMAN said that one of the indicators, of children who do not do well in schools, is students who grow up in poverty. In one village 62 percent of the entire student population lives below the poverty level, 48 percent in another, 44 percent in another, 35 percent in another, all the way down to Barrow which has 10 percent of the population living below the poverty level. These numbers were derived from the national school lunch program, numbers which are submitted to the federal government. Number 1440 REPRESENTATIVE DYSON asked how many homes below the poverty level had televisions. MR. DISHMAN answered that he did not know. REPRESENTATIVE DYSON asked the correlation in his district between the homes having books and parents that read to their children and their performance. MR. DISHMAN answered that there is a universal correlation regarding that situation. He could say that books are put into the schools. Programs have been set up, using federal grant money, to put books into homes. He could not, however, answer his question precisely. Number 1486 CHAIRMAN BUNDE said the greatest predictor of student success over all other socio-economic things is that parents read to their kids. MR. DISHMAN commented that, in the North Slope, the day a child arrives home they receive a book on how important it is to read to your child, a letter of congratulations to the parents and a t- shirt saying, "North Slope Borough School District Class of 2013 or 2014 Please Read to Me, Please Care for Me, Please Love Me". Number 1526 JOHN HOLST, Superintendent, Sitka School District, explained that his comments are going to be reflective of the board and the citizens of Sitka. When the new foundation formula was put into effect in 1987, Sitka lost about $1 million in funding on a $10 million budget. With the cap that keeps the district from spending any more, Sitka is the lowest per pupil expenditure district in the state. Sitka has been sitting in a position of having the lowest per pupil expenditure without having the advantages of size that Anchorage or Fairbanks has and not being allowed to increase their spending. When people say that they don't want to see change because it will create winners and losers, citizens in Sitka take exception to that because many schools in Southeast Alaska were made losers ten years ago. They were made losers with a promise that next year if there was a problem with the area cost differential, it will be revisited. A study was done and, had it been implemented, values would have been adjusted 5 to 8 percent in Southeast Alaska as well as in Kenai and Mat-Su. MR. HOLST said it is difficult for citizens in Sitka. He said Sitka has lost 11 percent of their population, in the last four years, with the closing of the mill. He explained the difficulties of having fewer students and eliminating positions. The first year school nurses were eliminated. Currently there is one contract nurse for 15,000 students. In the late 1980s, Sitka contracted for food service, custodial services and pays 60 percent of what any other district in the state pays for those services. The food service actually takes in revenue that allows Sitka to supply equipment and machinery. He explained that Sitka has not done these things because they are extraordinarily economical, they have been done because it has had to be done. A school was closed last year to save $125,000, but there are no more rabbits to pull out of the hat. Number 1701 MR. HOLST stated that the area cost differential must be adjusted. He referred to page 5, the size of schools, the community size factor and the ADM going from 10 to 20. This number goes up to 1,000 and then everyone who has over 1,000 students is treated the same way. This says to him that the economies of scale in Sitka, with 1,769 students, are identical to the operational costs in Anchorage. He challenged the committee to show the statistics which prove this. It is not possible to have economies of scale with 1,769 that you have with 46,000. He suggested that the committee look at the reduction when the student numbers hit 8,000 or 10,000 students. At that level, the number ought to be 1.0. There are only three or four spots in the state which would fit into that category. An adjustment should be made for Girdwood He suggested breaking it down to 1,000 to 2,000, 2,000 to 5,000 and 5,000 to 8,000, making above 8,000 the 1.0 and then take this 1.10 and ration it down to 1.08, 1.06, 1.04 et cetera. He felt this suggestion made sense and was defensible. MR. HOLST quoted Walter Hickel, "There is no vision, no hope, no future, no agenda for Alaska, if your only idealogy, if your only philosophy, if your only cause is to cut the budget." He said there may be more money in places than the legislature thinks ought to be there, but that is not the overall problem. A lid on spending has been in place for ten years. Maybe ten years ago there was more money than necessary in some places, but there aren't very many of those places left. He said, speaking from a place that started out with not enough, it has gotten really tough. Adjusting funding for new students and saying that it is a full funded education is not true. The school district has been forced to accept any cost of living adjustments for the past ten years. MR. HOLST stated that their bus contract was recently rebid. This five year bus contract had a cost of living adjustment of 3 to 5 percent every year during those five years. The Sitka experience has been the same as almost every other district in the state, there has been about a 30 or 40 percent increase in the cost of that new contract. The open market determines what those costs are. If the committee includes transportation in CSSSHB 148(HES), then transportation, over time, is going take more money out of the classrooms. The school districts can control spending because the legislature has made them, but it doesn't make it right. He felt the legislature had to loosen up a little bit and realize that the schools cannot continue what they are doing for the same amount of dollars. Number 1899 REPRESENTATIVE PORTER asked if the formula proposed in CSSSHB 148(HES) had been run against his school district's information. Number 1901 MR. HOLST had not seen a spread sheet, so he had no idea. He asked the committee to look at the area cost differentials in terms of Sitka and the size of schools issue because it won't stand up in court. This issue involves funding every community over 1,000 students the same way because it assumes operational efficiency. Number 1941 CHAIRMAN BUNDE commented that the role model that Sitka achieved in efficiency, in some of the ancillary services for education, should be looked at as a role model. MR. HOLST commented that Sitka has no more of those ancillary services which they can reduce, other than contracting out teaching services. CHAIRMAN BUNDE announced that the committee meeting was closed, but he asked the committee members to remain in order to discuss what they would need to understand the complexities of the foundation formula. ADJOURNMENT There being no further business to conduct, CHAIRMAN BUNDE adjourned the meeting of the House Health, Education and Social Services Standing Committee at 5:17 p.m.