MINUTES SENATE FINANCE COMMITTEE March 10, 1993 9:15 a.m. TAPES SFC-93, #35, Side 1 (428-end) SFC-93, #35, Side 2 (575-425) CALL TO ORDER Senator Steve Frank, Co-chair, convened the meeting at approximately 9:15 a.m. PRESENT Sen. Frank, Co-chair Sen. Pearce, Co-chair Sen. Rieger Sen. Kerttula Sen. Kelly Senator Sharp arrived soon after the meeting began. Senator Jacko attended the latter portion of the meeting. ALSO ATTENDING: Representative Fran Ulmer; Andrew Grose, President, WESTRENDS, and Head of the Western Legislative Conference, Denver, Colorado; Dave Tonkovich, fiscal analyst, Legislative Finance Division; and aides to committee members and other members of the legislature. SUMMARY INFORMATION PRESENTATION BY ANDREW GROSE, PRESIDENT WESTRENDS AND HEAD OF THE WESTERN LEGISLATIVE CONFERENCE DENVER, COLORADO CSHB 45 - Act making appropriations to the Department of (Fin) Education for support of kindergarten, primary, and secondary education and community schools programs and for school construction debt retirement; and providing for an effective date. SCS CSHB 45 (Fin) was reported out of committee with a "do pass" recommendation. Total appropriation: $774,327,070. WESTRENDS - PRESENTATION BY ANDREW GROSE Upon convening the meeting, Co-chairman Frank acknowledged Representative Fran Ulmer and asked that she introduce the guest speaker. Representative Ulmer advised that Andrew Grose is the head of the council of state governments for the western region. He is also President of WESTRENDS. WESTRENDS conducts analysis of trends, undertakes research projects, reviews population changes, economic projections, etc. It recently completed a report on the West, including Alaska. Mr. Grose will share information from that report. ANDREW GROSE, President, WESTRENDS, explained that the impetus behind WESTRENDS when it was established in 1986 was legislative need to look ahead five to ten years and anticipate how change might impact policy decisions. WESTRENDS issued a report in 1989 titled, "The Dynamic West, A Region in Transition." That report was upbeat--almost a celebration of the West. The newest report entitled, "The West Comes of Age: Hard Times, Hard Choices" is more sobering. Copies will be provided to all U.S. legislators next month. Mr. Grose said he would speak to the most salient points of the report from a policy making perspective. Topics of importance relate to: 1. Nature of the change in the demography of the West in the last ten years. 2. Changing economy of the West and relative decline in that economy over the decade of the '80s. 3. Impact of changing populations and declining economies on state governments. Mr. Grose acknowledged that WESTRENDS is knowledgeable about the West as a region rather than an expert on any individual state. Speaking to demography, Mr. Grose said that western population increases are slowing. Each decade since World War II has slowed somewhat, even though increases are running at twice the national rate. Alaska was the second fastest growing state in the West, behind Nevada. It was also the only western state to grow faster during the 1980s than in the 1970s. Population is defined as: 1. Natural (births over deaths) 2. Residual (immigration versus outmigration) Alaska's rate is high in both areas with natural growth being twice as high as immigration. The 1991-92 growth rate was almost 3%. That would equate to 30% growth in the decade and would place Alaska second or third nationwide. Of major importance to demography are: 1. Changes in the nature of the population of the West 2. Changes in age compositions The changing nature of the population results from "tremendous foreign immigration." More immigrants came to the United States in the 1980s than at any time since the first decade of the 20th Century. Of all foreign immigration, 40% came to the West which has 20% of the national population. The rate of western immigration was thus twice that of the rest of the country. During the 1980s, approximately 11,000 of the 148,000 new Alaskans came from foreign countries. By contrast, 54% of California's population increase was from foreign immigration. One in ten Californians, today, came from a foreign country in the last ten years. While the cultural, economic, and political impact in other states is less than in California, it is nonetheless a significant factor in all western states. The change in ethnic composition has not been so dramatic in Alaska. However, Alaska has experienced a dramatic increase in the percentage of its black population. It is, in fact, the largest increase in that segment of the population of any state (approximately five times the national rate). Mr. Grose agreed that when working from a small base such as Alaska's black population, it does not take much to experience a large percentage increase. That is true for most of the western states with the exception of California. Co-chair Pearce asked how WESTRENDS accounts for movement of military people. Mr. Grose explained that, in conducting a census, individuals who are temporarily assigned to a certain location are counted in terms of their home of record. Mr. Grose next directed attention to handouts (appended to these minutes as attachments) and accompanying slides. He noted that when California is removed from the equation, the greatest population increase in the West results from natural growth (births over deaths). The West has the smallest percentage of white residents compared to the rest of the nation. It also has the largest percentage of Hispanics and Asian-Americans. Speaking to age composition, Mr. Grose pointed to categories ranging from: 1. Under five 2. School age 3. Over sixty-five He then noted western growth in those categories far greater than the rest of the country. The West has more preschool and school age children than other states. Further, while the West has fewer individuals over sixty-five than the rest of the nation, that category is growing much faster in the West than elsewhere. That makes sense in western states such as Arizona and Nevada which have experienced substantial growth in retirement populations. However, the highest rate of increase in the entire West was in Alaska. Mr. Grose advised that he found that curious and could not explain it. It indicates a lot more older people are remaining in Alaska than ever before. Senator Kelly pointed to the fact that the state pays them to stay. Referring to economic issues, Mr. Grose noted an overall economic decline. Decline remains a question of manufacturing jobs versus non-manufacturing jobs as well as the international nature of the regional economy which relies on investments, exports, and tourism. Mr. Grose next directed attention to changes in per capita income. He explained that unlike every decade since World War II, in the 1980s the West was either last or next to last in growth in all measures of income (personal income, family income, gross state product). Alaska lags well behind both the regional and national average for growth in this area. Mr. Grose acknowledged the phenomenon of the "energy factor" present in Alaska, Montana, Wyoming, and Colorado. End, SFC-93, #35, Side 1 Begin, SFC-93, #35, Side 2 He explained that the decrease in the price of oil had a great impact on 1980-90 economic figures in Alaska. However, other western states with no association with this energy factor also lost income when compared to other parts of the nation. That is significant. A review of median family income by region evidences lowest increases in the West. Alaska experienced the smallest increase, with the exception of Montana and Wyoming. The West is next to last in terms of growth in gross state products. It is "dead last" if California is removed from consideration. In this area of growth, Alaska was next to last to Wyoming. Speaking to growths in manufacturing employment, Mr. Grose noted that the Northeast lost jobs, and the rest of the nation gained in percentage. The biggest winner, however, in personal and median family income was the Northeast. That calls into question conventional wisdom regarding manufacturing jobs as the answer to economic growth and prosperity. The nation as a whole lost approximately 4% of its manufacturing jobs. The West enjoyed a large percentage increase. Alaska enjoyed a "respectable increase in what is a very small manufacturing base." Mr. Grose next spoke to the economic impact of tourism. He noted conventional wisdom that tourism jobs are not particularly good in terms of income. Data appears to reflect that. Tourism is the number one industry in the West. It is number one in nine western states, including Alaska. More people are employed in tourism and related jobs than any other single sector of the economy. Job growth between 1985 and 1990 was good in the West, although the South enjoyed a greater percentage of growth. Alaska showed healthy growth in tourism jobs (third in the West after Hawaii and Nevada, the national leaders). Tourism spending shows that the West is "far and away" the leader. The variable is foreign tourism. The West experienced a much greater increase in this area than the rest of the country. Foreign tourists spend far more per day than domestic travelers. Alaska experienced only modest growth in foreign tourism. The state's growth in tourism spending was relatively low, even though there was healthy growth in tourism jobs. The West is the national leader in exports. Review of the period between 1987-90, shows significant growth. In the value of exports per capita, the West is far ahead. Alaska has the highest value in the United States. Those exports relate primarily to timber and fisheries. Twenty-five percent of all U.S. exports and one-half of the growth, during the above-noted three years, came from the West's five coastal states. While Alaska ranks 47th in population, it ranks 27th in total exports. Exports are thus extremely important to the state. Speaking to foreign and direct investment, Mr. Grose noted that the rate of increase for the West (1977-90) is far greater than the rest of the country. Most of the foreign manufacturing investment occurred in California. There is considerably more Asian than European investment in the West. Alaska is second only to Hawaii in Asian investments. The West equals growth and opportunity. That is extremely good news for Alaska. The West is fertile territory for new job creation by small businesses. The region is also far ahead of the rest of the country in the number of women- owned business to female population. Alaska is number two, nationwide, for new job creation from small businesses. It is number six for women-owned business, and number one for minority-owned businesses. The latter ranking reflects Alaska's native corporations and their considerable economic power. Speaking to economic diversity, Mr. Grose noted that western states are the least diverse in the nation. The West is also more reliant on outside sources for goods and services. Mr. Grose acknowledged that in eleven of the thirteen western states, the biggest increases in exports were in agriculture and natural resources. In six of the states, the largest increases were in minerals and petroleum. This practice of exporting natural resources and importing finished goods reflects colony status. It is not a source of strength in terms of long-term economic prospects. Economic problems become political problems and translate to more taxes and restricted services. The big loser for most of the West was education. Pointing to a slide presenting changes in state revenues per capita, Mr. Grose noted that the smallest increase was in the West. Alaska had the smallest revenue gains of all western states. Mr. Grose next spoke to the percentage of income devoted to state and local taxes. He explained that even though the economic capacity of the West shrank in the last ten-year period, the percentage of income allocated for taxes dropped slightly because of initiatives like Proposition 13 and other tax limitations and caps. Eleven of the twenty states that have adopted such initiatives are in the West. Mr. Grose next explained how tax figures are calculated and further spoke to tax capacity and tax effort. The ideal situation is to have high capacity and low effort. That is not the case in the West. There is little difference between the two, and the gap is closing. That is the reverse of the situation in the northeast where capacity is increasing. Speaking to educational funding, Mr. Grose noted that in the period 1960 to 1989, the West approaches the national average. In the most recent ten years, however, it is substantially behind the rest of the country. The increase in the region was 1.5 percent per year while it was 3.0 for the rest of the nation. The West started the decade with the highest per capita spending on K-12. The region thus had some "fat to live on" through the decade. The question is, Can the region go another ten years like that and still be okay? Mr. Grose directed attention to an additional slide setting forth figures for both the 1979-80 and 1989-90 school years. In the ten-year period there was an extremely small increase in Alaska. Alaska and Hawaii, the two biggest spenders in education, had the smallest increases. The West as a whole moved from expenditure of $4,000 to $5,000 per pupil. Pointing to a slide containing figures for teachers' salaries, Mr. Grose noted that Alaska, Hawaii, and Utah are the only states that did not maintain the CPI. He acknowledged that Alaska probably had artificially high salaries during the pipeline boom. During the last decade, those pay levels became more realistic. In his concluding remarks, Mr. Grose reiterated that WESTRENDS is not an expert on any particular state. Knowledge of regional trends is important to state legislators. In light of the economic decline in the West, there is need for regional cooperation to address the problem. Senator Kelly explained that growth of the senior citizen population in Alaska could be directly attributed to the fact that seniors are paid to remain within the state. Residents over 65 years of age receive a $250 monthly longevity bonus. All residents also receive a yearly dividend of approximately $1,000.00. Alaska has no state income tax. Further, seniors over 65 do not pay property taxes. State government is thus subsidizing that portion of the population, and more senior citizens are remaining in Alaska because of those programs. Senator Kelly next voiced his belief that Alaska's black population increase is military oriented. He further advised of Alaska's huge veteran population. Co-chairman Frank directed that the meeting be recessed at this time. RECESS - 9:50 a.m. RECONVENE - 11:05 a.m. CS FOR HOUSE BILL NO. 45(FIN) An Act making appropriations to the Department of Education for support of kindergarten, primary, and secondary education and community schools programs and for school construction debt retirement; and providing for an effective date. Co-chair Drue Pearce reconvened the meeting, with all members in attendance, at approximately 11:05 a.m. She then directed that CSHB 45 (Fin) be brought on for discussion. A draft SCS CSHB 45 (Fin) dated 3/9/93 was distributed for committee review. Co-chair Pearce also noted a proposed amendment by Senator Kerttula. Directing attention to the draft Senate Finance version of the bill, Co-chair Pearce advised of two major changes. She explained that the House- passed version of the bill mistakenly cited FY 94 numbers. Those were not the numbers contained in the bill passed by House Finance. For single site schools, the Senate Finance version utilizes Dept. of Education numbers for FY 93 ADM. Those are the numbers the House asked be used. Further, the twelve single sites listed in the draft reflect the list of single sites negotiated with the House majority caucus. Co-chair Steve Frank MOVED for adoption of the draft SCS CSHB 45 (Fin). Senator Kerttula OBJECTED. He then inquired regarding single site schools included within the draft, asking if they were the sites highlighted in yellow on a tabulated handout from the Alaska Department of Education. Co-chair Pearce answered affirmatively. She then read the following list of sites which she explained were included in the House bill but not in the Senate Finance draft: Galena, Hoonah, Hydaburg, Kake, Klawock, Pelican, Skagway, Tanana, and Yakutat. The new total for single sites is $2,291,770. The House number, utilizing the correct FY 93 figures would be $3,358,050. Senator Kerttula inquired concerning the basis for removal of the above-listed sites. Co-chair Pearce said, "We worked with the House to negotiate a list, and those were the ones that dropped out." She further advised of original caucus discussion not to include any single sites within the bill. The House bill included all twenty-one. Negotiations between the House and Senate led to the compromise list. Senator Kerttula suggested that some of the poorest districts would be impacted by the cut, specifically noting Klawock. Co-chair Pearce explained that, with one exception, those that were removed are receiving forest receipt moneys. Senator Kerttula noted that Wrangell and Petersburg both receive forest receipt funds as well. He observed that Craig is included in the Senate Finance bill and acknowledged that the district is in "desperate shape." Senator Kerttula reiterated his opposition to adoption of SCS CSHB 45 (Fin). Co-chair Pearce called for a show of hands on the motion. The motion CARRIED on a vote of six to one, and SCS CSHB 45 (Fin) was ADOPTED. Senator Kerttula MOVED for adoption of his amendment. He acknowledged that in light of corrected House funding, the $760,670,230 and $811,929,330 set forth in the third paragraph of the amendment would have to be adjusted to FY 93 numbers. He noted, however, that the basic purpose of the amendment, to increase the instructional unit from $61,000 to $64,000 would not change. OBJECTIONS to the motion and amendment were voiced. Senator Kerttula told members that the instructional unit was negotiated to $61,000 during the past session. In light of the inflationary spiral, it should have been raised to $65,000. The unit had not been raised for five or six years prior to the recent increase. There is great support for an additional increase from the educational community and the public. The increase would approximate $36 million. Given new, unplanned for, funding sources ($1.4 billion), the legislature can afford to modestly raise the instructional unit. It would provide benefits across the board to both urban and rural districts. Senator Kerttula reiterated his support for the increase based on need. Senator Kelly inquired concerning the funding level prior to last year's increase to $61,000. Senator Kerttula answered that it was previously set at $60,000. Co-chair Pearce called for a show of hands on Senator Kerttula's amendment. The motion FAILED on a vote of one to six, and the amendment was NOT ADOPTED. Senator Kelly MOVED that SCS CSHB 45 (Fin) pass from committee with individual recommendations. No objection having been raised, SCS CSHB 45 (Fin) was REPORTED OUT of committee. Co-chairs Pearce and Frank and Senators Jacko, Kelly, Rieger, and Sharp signed the committee report with a "do pass" recommendation. Senator Kerttula signed "increase inst. unit." ADJOURNMENT The meeting was adjourned at approximately 11:15 a.m.