SENATE COMMUNITY & REGIONAL AFFAIRS March 17, 1994 9:00 a.m. MEMBERS PRESENT Senator Randy Phillips, Chairman Senator Loren Leman Senator Al Adams MEMBERS ABSENT Senator Robin Taylor, Vice Chairman Senator Fred Zharoff COMMITTEE CALENDAR ALASKA EDUCATION FOUNDATION FORMULA Duane Guiley, Department of Education ACTION NARRATIVE TAPE 94-22, SIDE A Number 001 The Senate Community & Regional Affairs Committee was called to order by Chairman Randy Phillips at 9:00 a.m. SENATOR RANDY PHILLIPS: Before the committee we have a review of the school foundation formula as it exists. Mr. Guiley. DUANE GUILEY, DIRECTOR, SCHOOL FINANCE, DEPT. OF EDUCATION: Mr. Chairman, thank you. Based on some questions that came up at our previous review, I've prepared three additional handouts for the committee. One of the questions that arose at the previous meeting that we couldn't answer with the information we had is what effect there would be on large urban communities, such as Anchorage, if we were to roll all of the schools into one funding community. The blue handout gives you both the existing scenario where in the case of Anchorage we have three funding communities entitled "Anchorage, Eagle River and Girdwood." As we work through the formula at each of the independent funding communities, they each develop separate K-12 units, as well as bilingual education units if they are serving bilingual children at those locations. We notice in Girdwood that there are zero units for bilingual education; special education units at all three locations; and voc ed units at two of the locations. Voc ed units are only available for secondary grade levels, and, in the case of Girdwood, we only offer it at elementary grade level at that location. The existing state aid at the bottom of the schedule shows $177,592,837. The second page is a comparison. If all three locations were rolled into one funding community under the regulatory definition for "unified city borough," it would result in a loss to the Anchorage School District of $758,840. SENATOR RANDY PHILLIPS: Lets go back to the first page. The bilingual units for Eagle River is at 1.40. Is that based on people participating in that? DUANE GUILEY: Yes, sir, that's based on the number of children that are measured under what's called "allow category" -- a language assessment category, and children qualify under one of five different scenarios. The funding is available to the school district, and the district does not have to spend the money on those students; they earn the money based on the students identified. SENATOR RANDY PHILLIPS: And the same thing for special ed? DUANE GUILEY: In comparing Eagle River to Anchorage, more than 10 percent of their total units are coming from special ed. Again, Mr. Chairman, if you recall, the bilingual, special ed and voc ed units are duplicative in that that child is also counted into the K-12 unit first. Also, by way of comparison, the yellow sheet shows the same scenario in the Fairbanks North Star Borough School District. Fairbanks North Star Borough currently operates with five funding communities. They generate, with those five funding communities, state aid of $62,843,796, and if all were rolled into one funding community, it would result in a loss to that district of $1,926,380. The only thing that changes in each of the scenarios is the total amount of basic need. The deducts from basic need, which are the 4 mill local contribution and the impact aid deduct, remain unchanged, so any resulting change from basic need ends up in an equal change to state aid in each scenario. SENATOR ADAMS: An overall question on these and others has to do with the status of the PL81-874 funding. Do you have that for us? DUANE GUILEY: Yes, sir, I do. There are currently two pieces of legislation that have been introduced in Congress for the purpose of reauthorizing the Public Law 81-874 program. On the House side it is currently referred to as HR 6. In both bodies it is referred to as Title 8 in their bills. On the Senate side it is SB 1513. HR 6, the way it has passed the House committee, (and it is blocked from further amendments at this point) would result in approximately an eight percent increase in total revenue to the state. But based on the disparity standard that's included in the bill, the state would no longer be able to recognize impact aid payments in distributing state aid. Therefore, we would have a $43 million general fund shortfall in our formula and it would require an additional increment of $43 million to fully fund education. On the Senate side, SB 513, which is just beginning its subcommittee hearing process, significantly changes the dollar amount available to support each and every student. Based on calculations from U.S. DOE, they indicate that Alaska would lose as much as $50 million under their scenario. Alaska would still be allowed to do the deduct, but, of course, we would be doing a deduct on significantly less dollars, so we would end up with approximately a $20,000,000 to $25,0000,000 general fund shortfall in distributing state aid. The districts themselves would significantly lose more through the reduction in the local contribution rate, or the federal aid rate per eligible student. In talking with our Congressional delegation, it appears that it will end up in a conference committee to work out the final details. We've notified the Congressional delegation of the department's desire, of course, that we still be allowed to do the deduct in our formula, thereby not putting the burden on our State Legislature of trying to determine how to fund the $43 million shortfall. We're attempting to get support from the school districts, and the school districts, of course, have mixed opinions. Those that would gain by not having the state deduct, for the most part, oppose the department's position. Those that would lose under a potential proration of unit value in the event of the $43 million support the department's position. Some of those that would gain the most are actually expressing support for the department's position because they are fearful that it may be something that requires a significant rewrite of our foundation formula and right now they are not interested in having a rewrite of the formula. SENATOR RANDY PHILLIPS: Mr. Guiley, would you put that in writing for the committee, and keep it real simple. SENATOR ADAMS: Using Anchorage as an example, the total under PL81-874 is almost $12,000,000. In either piece of legislation in Congress, are there different kinds of formulas under 874 that affect different schools in different ways? DUANE GUILEY: Yes, sir. On the Senate version, SB 1513, the formula is most similar to the current law, although it adds a third step. So most districts that receive impact aid today would continue to receive impact aid, but they would be reduced approximately 60 percent from their current receipt. Taking Anchorage as an example, Anchorage would lose approximately $7,000,000 of their receipt under the Senate version, and that 60 percent would be spread evenly throughout the state. Under the House version, HR 6, the formula is much more complex, and districts would enjoy the 8 percent increase only if the law is fully funded at the federal level. Based on estimates from U.S. DOE, at the current time it would take approximately $1.6 billion to fund the program nationally. Most recently, the appropriation has only been $842 million so, therefore, there would be a significant proration across the nation. In the proration portion of HR 6 -- again, it is very complex -- it would require a second calculation of what's called a "learning opportunity threshold." The purpose of the learning opportunity threshold is to determine the significance of impact aid in relation to the total budget, and those districts that rely more heavily on impact aid would be prorated last. So districts like Anchorage that do not have a heavy reliance on impact aid would be prorated among the first group. Districts such as Yupiit School District, Lower Yukon, Bering Straits, Northwest Arctic and Lower Kuskokwim would be prorated last. The more rural districts, as opposed to the urban districts, would, in all likelihood, still receive some sort of an increase under impact aid. Our urban districts would, in all likelihood, receive zero unless the federal government doubles the appropriation amount that they have had in the past under impact aid. SENATOR ADAMS: Would the effect of something like this and the funding start in October. DUANE GUILEY: Yes, sir. The federal fiscal year begins October 1; the effect on the school districts would be felt this next school year. Under our state formula we delay the recognition one year, so it would be FY 96, under the state fiscal year, when we have an effect in our general fund under the current law. SENATOR RANDY PHILLIPS: Are you relaying this information to the Finance committees. DUANE GUILEY: Yes, sir. Each time we testify on our budget -- we've had a two-page handout that briefly describes the issues on both the Senate and House side, and I would be glad to share that with the committee. I do have a one-page handout of the potential proration and I could describe to you verbally what the situation would be in the event that the state is unable to deduct the impact aid in our formula and our State Legislature is unwilling to fund the additional $43 million required. It would require a significant proration of our urban districts. As an example, in the case of Anchorage where they receive nearly $12 million of impact aid, even after keeping that $12 million receipt in tact and keeping 100 percent of that money, their share of the proration will be over $17 million. So, they would have a net reduction of $6.8 million. As a comparison, Adak School District, which is scheduled to receive $457,000 in state aid next year, if we're unable to deduct, would actually receive an increase of $2,138,000 over and above their scheduled receipt of $457,000. So their state aid would go up five times while Anchorage had a loss of $6.8 million. By way of additional comparison, the district in Juneau would be prorated to a loss of $1,629,000, and because they are so close to the cap, that would result in them having to give back local tax dollars as well. So, their net loss would be about $2.2 million to their current operating budget. Their current operating budget is just over $22 million so they would have to reduce their program by approximately 10 percent of state dollars, as well as local dollars. It affects primarily the urban districts who have the greater number of students and the lower receipt of impact aid. By way of another example, the Kenai School District would have a net loss of $3,273,000; Matsu School District, $3,602,000. The fear from some of those districts that do receive impact aid is: even though they might get an increase in impact aid, these losses in the large districts may create enough need or desire to rewrite our formula in that our formula was written on the basis of equalization. If we're no longer provided the opportunity to deduct impact aid, we no longer have an equalized formula, in fact, we'd have a disequalized formula. The chart begins by looking at the governor's proposed funding level for education with a prorated unit value of $59,855. If, in fact, we have the $43 million shortfall in general funds, the unit value would be prorated down to $56,390, and the net effect of the districts being able to keep 100 percent of their impact and their share of the $43 million proration shown in the third column, so that is a net number. SENATOR RANDY PHILLIPS: Anchorage would lose about $6.8 million and Annette Island would get a net gain of about $1 million. Can you explain that. DUANE GUILEY: Annette Island relies very significantly on impact aid. Currently, their students enjoy only 45 percent of their budget as support from the state government; 55 percent of their budget is made up of federal dollars. That's because, basically, 100 percent of their students are impact aid eligible, so that results in a significant savings to the state in state support for that district through the equalization. So, if we're no longer able to equalize, they would keep 100 percent of their impact aid receipt and they would have an almost 60 percent increase in their total operating budget. Another example in the opposite direction is the Lower Kuskokwim School District. They receive a little over $8 million in impact aid; the state recognizes through a deduct 90 percent of that money as a reduction in state aid received. So, again, if we're no longer able to recognize that deduction, they would keep 100 percent of the impact aid, and then after their share of proration is absorbed, they would still end up with a net increase of $3,511,000. The back of the sheet shows the effect on local contribution rate. Again, the local contribution rate has a cap, and that cap currently, under state statute, is 23 percent of current year basic need as adjusted for proration. So, the purpose of the first column at $61,000 shows how much the district could contribute under the $61,000 scenario. The column with the $59,855 is current governor's budget. The potential $56,390 is if, in fact, we prorate due to the loss of impact aid. So, in comparing that column to the budgeted column, anyone that has a negative number would have to give back local dollars. So, the first negative number there, Juneau, $614,000, would be local dollars they would have to give back assuming that their FY 95 budget number is equal number to their FY 94 budget number for local contributions. Currently, that is the best and most recent information we have. We have no idea how that will actually vary from their FY 95 budget. SENATOR RANDY PHILLIPS: So Senator Adams' area, the North Slope, would lose about $6 million, right? DUANE GUILEY: No, this positive number indicates that they could actually contribute $6 million more to their budget on this schedule, so only the bracketed numbers are those districts that would lose local dollars. Going back to your district, Anchorage would still have an opportunity to contribute another $27,072,000 local contribution under the worse case scenario proration. Under the worse case scenario of proration of the $43 million, there is $54.8 million of local capacity for potential increases to school operating budgets. if there was the desire at the local level. That compares, currently, to just over $61 million at the $61,000 unit value. SENATOR RANDY PHILLIPS: I know Senator Taylor has talked a lot about Anchorage not contributing to the level -- is that the $27 million he is talking about? DUANE GUILEY: Yes, it is. Number 320 There being no further questions or further business to come before the committee, the meeting was adjourned at 9:24 a.m.