MINUTES SENATE FINANCE COMMITTEE 3 March 1998 4:40 p.m. TAPES SFC-98, #60, Sides A and B CALL TO ORDER Senator Bert Sharp, Co-chairman, reconvened the meeting at approximately 4:40 p.m. PRESENT In addition to Co-chairman Sharp, Senators Pearce, Phillips, Donley, Torgerson and Adams were present when the meeting was reconvened. Senator Parnell arrived shortly thereafter. Also Attending: Senator Robin Taylor; Senator Gary Wilken; Senator Lyda Green; Mike Ford, Legal Services, Legislative Affairs Agency; Richard Cross, Deputy Commissioner, Department of Education; Karen Rehfeld, Director, Education Support Services, Department of Education; Eddy Jeans, Manager, School Finance Section, Education Support Services, Department of Education; John Cyr, President, NEA-Alaska; Ashley Reed; and aides to committee members and other legislative members. SUMMARY INFORMATION SENATE BILL NO. 36 "An Act relating to transportation of public school students; relating to school construction grants; relating to the public school foundation program and to local aid for education; and providing for an effective date." Co-chair Sharp reconvened the committee and advised that he intended to go through the amendments numerically. Amendment #1 was HELD at the request of Senator Phillips. Amendment #2 was MOVED by Senator Donley with modification to line 6, "at least". Senator Torgerson OBJECTION for discussion. Senator Adams OPPOSES amendment. The committee should wait for the confidential audit regarding transportation. Senator Donley briefly responded. Senator Torgerson asked the funding source and how much it would cost. (pause on record) Richard Cross, Deputy Commissioner, Department of Education was invited to join the committee. Eddy Jeans, Manager, School Finance Section, Education Support Services, Department of Education, was invited to join the committee. Senators Torgerson and Adams requested the approximate cost for funding pupil transportation. Mr. Jeans indicated that he did not know the funding costs. A dual system was not being run in all districts. In response to a further question by Senator Pearce, Mr. Jeans said it would be better to contract out the entire system. Senator Torgerson REMOVED his objection. The objection by Senator Adams was MAINTAINED. Amendment #2 was ADOPTED by a roll call vote of 6 - 1 (Sharp, Pearce, Donley, Torgerson, Parnell, Phillips). Amendment #3 was MOVED by Senator Torgerson. Senator Adams OBJECTED. The department would be required to notice in the Regional Education Attendance Area the amount that had been allocated as a result of the local contributions. It further required the department to publish the results of that contribution in a newspaper of general circulation for a period of three consecutive weeks. Senator Adams said the particular taxation and local contribution from REAA's under AS 14.17.410(b)(3) would render this amendment invalid. The way the bill was written this was unconstitutional as taxes only belonged to organized boroughs or cities. Senator Torgerson indicated that Mr. Ford from Legal Services was present and could testify as to the legal ground. Senator Parnell asked if REAA's going to give the same notice with regards to taxes being paid and being spent on education? He felt they should also get the same notice. He felt it was important for everyone to get the proper notice. Senator Adams said he maintained his objection to something that was unconstitutional. Mike Ford, Legal Services, Legislative Affairs Agency was invited to join the committee. He indicated that he did not see any problem with this particular amendment. Senator Adams asked if, according to Senator Adams, AS 14.17.410(b)(3) was unconstitutional? Mr. Ford said that taxing powers were not being given to REAA's, only notice of local contribution. The question under SB 36 as drafted went to how were local contributions to be made, how was that requirement to be imposed. If imposed indirectly, which is present situation under SB 36 there were some uncharted waters. Senator Torgerson asked if a new amendment had been drafted to correct this matter and Mr. Ford indicated that one had been drafted for Senator Torgerson. If that amendment were adopted then they would be out of the constitutional question. Senator Adams MAINTAINED his objection. By a roll call vote of 6 - 1 (Sharp, Pearce, Donley, Torgerson, Parnell, Phillips) amendment #3 was ADOPTED. Amendment #4 was MOVED by Senator Torgerson. Senator Adams OBJECTED. Senator Torgerson indicated that amendment #4 would amend Title 29 and remove therefrom the prohibition against third class boroughs forming unless they meet the criteria established, which basically indicates they are an REAA and meet the other qualifications as already outlined. Senator Adams said it appeared to him they were trying to put together a "Christmas tree" bill and forcing different areas to accept different types of class of organization. This should be handled under a separate piece of legislation. Formations of government should not be in a foundation bill. Senator Torgerson said other pieces of legislation had been introduced but said they were trying to fit this in because it most closely fit the regional education areas. If a third class borough is formed the assembly could then serve as the school board. If an REAA is required to make a contribution they should be offered the opportunity to be a form of government. Co-chair Sharp said his understanding was that this amendment would revoke the prohibition for third class boroughs being formed and allows them the option of forming third class boroughs for the purpose of school? Senator Torgerson indicated that was correct. This option was not available before and it is still not being mandated. Senator Adams MAINTAINED his objection. By a roll call vote of 6 - 1 (Sharp, Pearce, Donley, Torgerson, Parnell, Phillips) amendment #4 was ADOPTED. Amendment #5 was MOVED by Senator Torgerson. He said it did not want to be mandated on each district they would be required to have a superintendent and therefore the amendment changed the word "shall" to "may". Senator Adams OJBECTED. By a roll call vote of 6 - 1 (Sharp, Pearce, Donley, Torgerson, Parnell, Phillips) amendment #5 was ADOPTED. Amendment #6 was MOVED by Senator Torgerson. Senator Adams OBJECTED. Senator Donley MOVED to amend amendment #6, line fourteen to delete "four" and insert "three". Senator Adams asked if the fiscal impact of going from "four" down to "three" was that the winners would now lose one percent of whatever they would gain? Senator Donley responded. WITHOUT OBJECTION amendment to amendment #6 was ADOPTED. Senator Adams continued his OBJECTION to amendment #6. He MOVED amendment to amendment #6, lines 15 and 16 to strike "unorganized borough" and insert "State of Alaska". Senator Phillips OBJECTED. By a roll call vote of 1 - 6 (Adams - yea) (Sharp, Pearce, Donley, Torgerson, Parnell, Phillips - nay) amendment to amendment #6 FAILED. Senator Adams continued his OBJECTION to amendment #6. Senator Phillips said there were areas in the State that either did not pay or paid very little by way of their contribution of assessed property value. Senator Adams said that he also was a property owner in Anchorage, however, it was not fair because not everyone in Anchorage paid a property tax. Senator Parnell concurred with Senator Phillips that unless all were contribution to education those areas which were already paying taxes were contributing for all of Alaska. Unless all contribute there will be no equity. Senator Adams said that it was mainly rural Alaska that paid for education because it was their resources that were used. Anchorage was just a services and goods area. He noted that there was Federal funding under PL874 which provided that payment. Senator Phillips also noted that those renters in Anchorage indirectly paid through landlords. By a roll call vote of 4 - 3 (Donley, Torgerson, Phillips, Parnell - yea) (Sharp, Pearce, Adams - nay) amended amendment #6 was ADOPTED. Amendment #7 was MOVED by Senator Torgerson. Senator Adams OBJECTED for discussion. (Tape #60, side A switched to side B.) Senator Adams WITHDREW his objection and amendment #7 was ADOPTED unanimously. Amendments #8 and #9 were NOT OFFERED by Senator Torgerson. Amendment #10 was HELD by Senator Phillips. Amendment #11 was MOVED by Senator Torgerson. Senator Adams OBJECTED. By a roll call vote of 6 - 1 (Sharp, Pearce, Donley, Torgerson, Parnell, Phillips - yea) (Adams - nay) amendment #11 was ADOPTED. Amendment #12 was MOVED by Senator Torgerson. Senator Adams OBJECTED. Senator Torgerson MOVED to amend amendment #12, page two, line twenty to delete "four" and insert "three" as a conforming amendment. Senator Adams MAINTAINED his objection. By a roll call vote of 6 - 1 (Sharp, Pearce, Donley, Torgerson, Parnell, Phillips - yea) (Adams - nay) amendment to amendment #12 was ADOPTED. Amendment MOVED amendment #20 as amendment to amendment #12. Senator Adams OBJECTED. By a roll call vote of 6 - 1 (Sharp, Pearce, Donley, Torgerson, Parnell, Phillips - yea) (Adams - nay) amendment #20 was ADOPTED. Returning back to amendment #12, Mr. Ford requested a conceptual amendment on page 3, line 7 to insert "in the State". Senator Donley MOVED this conceptual amendment and WITHOUT OBJECTION it was ADOPTED. By a roll call vote of 5 - 2 (Sharp, Donley, Torgerson, Parnell, Phillips - yea) (Pearce, Adams - nay) amended amendment #12 was ADOPTED. (Tape #60, Side B changed to Tape #61, Side A at 6:30 p.m.) Amendment #13 MOVED by Senator Phillips at the request of Senator Robin Taylor. Senator Robin Taylor was invited to join the committee. He said this amendment was not really a courtesy because this had been originally in the bill and for some reason had been left out. He explained the "hold harmless" provision in case there was a drop in enrollment greater than ten percent in instructional unit value. The funding for the school district would drop off smoothly. He noted there was a three-year transition period. He referred to the impact of the mill closure in Ketchikan. He noted the same thing was done in Sitka and Skagway in prior years. Senator Gary Wilken said this provision had not been part of the bill and was uncomfortable putting it in. After further discussion with Senator Torgerson and Co-chair Sharp, Senator Taylor said he would be happy to bring this amendment back here or on the floor. Senator Torgerson said he would like to work with Senator Taylor regarding this measure. WITHOUT OBJECTION Senator Phillips WITHDREW amendment #13 contingent that Senators Taylor and Torgerson would work out any problems. Amendment #14 was MOVED by Senator Adams. Senator Torgerson OBJECTED. Senator Adams explained the status of correspondence students. Senator Wilken said perhaps the Department of Education should clarify the issue. There followed miscellaneous discussion with reference to the correspondence program between Senators Torgerson and Wilken. It was noted that the correspondence program does not have any overhead. Senator Torgerson said he MAINTAINED his objection. Richard Cross, Deputy Commissioner, Department of Education was invited to join the committee. He explained the sixty- five percent reimbursement for the Aleyeska Central School. The current rate under the present formula for in district correspondence programs counts them as students in the largest funded communities so they are treated as any other student in the district. The department had no comment and could shed no light as to why there should be a differential cost for the correspondence students. Co-chair Sharp asked if there was currently a difference on correspondence courses for communities not providing classrooms? Mr. Cross said there had recently been a significant increase in the number of correspondence programs and students in the State. This need must be addressed because the current formula is inadequate. Version "H" of SB 36 treats in district correspondence students different from out of district correspondence students. The department does not understand this rationale and Co-chair Sharp said he did not either. Senator Torgerson asked if they supported Senator Adams' amendment? Mr. Cross said they supported that correspondence students should be treated the same across the State. Senator Torgerson asked if the sixty-five percent funding for Aleyeska was sufficient? Mr. Cross indicated that by all accounts the Aleyeska Correspondence program was a highly effective correspondence program in the State and the students and parents involved speak very highly of it. By a roll call vote of 4 - 2 (Torgerson, Adams, Parnell, Phillips - yea) (Sharp, Pearce - nay) (Donley - absent) amendment #14 was ADOPTED. (pause on record) Amendment #15 was MOVED by Senator Adams. Senator Torgerson OBJECTED. Senator Adams requested assistance from the department because this amendment dealt with the bilingual situation. Senator Phillips said this was one of the soft areas of the bill and wanted it explored more fully. He did note that Senator Adams could not address the fiscal note portion of the bill and it did need to be examined. Richard Cross, Deputy Commissioner, Department of Education was invited to join the committee. He explained the situation of the Lower Kuskokwim School. Certain districts would qualify for bilingual funding. He explained the difference in Lower Yukon School and Lower Kuskokwim School bilingual funding being the difference in the classification of the students. He said the classification was based on the definition of "need"; category "A" student does not speak English. Senator Phillips said he was concerned in these school English was the secondary language. Mr. Cross explained the problems with bilingual education. Under this amendment the categories would be treated equally and some of the problem would be eliminated. He cited the big difference from other states was that the bilingual education did not embrace foreign languages, rather indigenous languages. Therefore, comparisons to for instance California were invalid. Senator Phillips said at this time the numbers could not be addressed with concern to the fiscal notes. Mr. Cross said he would have to go back and run amendment in addition to the others passed this evening. Co-chair Sharp indicated that most amendments would not impact the fiscal notes. Senator Parnell felt the department should consult with the sponsor of the amendment. Senator Adams indicated that he would withdraw amendment #15 and asked that the department however make their run including the amendment and give the results to the committee. Co-chair Sharp asked the department if this was possible and Mr. Cross said it could be done. Co-chair Sharp concurred with the request of Senator Adams. WITHOUT OBJECTION Senator Adams WITHDREW amendment #15. Amendment #16 was MOVED by Senator Adams. Senator Torgerson OBJECTED. Senator Adams explained that it was a simple technical amendment. By a roll call vote of 1 - 6 (Adams - yea) (Sharp, Pearce, Donley, Torgerson, Parnell, Phillips - nay) amendment #16 FAILED. Amendment #17 was MOVED by Senator Torgerson. Senator Adams OBJECTED. He maintained that the McDowell study was flawed. By a roll call vote of 6 - 1 (Sharp, Pearce, Donley, Torgerson, Parnell, Phillips - yea) (Adams - nay) amendment Amendment #18 was MOVED by Senator Torgerson. Senator Adams OBJECTED. By a roll call vote of 6 - 1 (Sharp, Pearce, Donley, Torgerson, Parnell, Phillips - yea) (Adams - nay) amendment #18 was ADOPTED. (Tape #61, side A switched to side B.) Amendment #19 was MOVED by Senator Torgerson. Senator Adams OBJECTED - OBJECTION WITHDRAWN. Senator Torgerson explained situation with Mt. Edgecombe School. With this amendment they would be treated as if they were a school in a school district and would have a slight gain in their funding. WITHOUT OBJECTION amendment #19 was ADOPTED. Co-chair Sharp advised that amendment #20 was already decided in conjunction with amendment #12. Amendment #21 was MOVED by Senator Parnell. Senator Phillips OBJECTED. Senator Parnell voiced concern about equitable funding within a school district. The amendment would add a purpose section to ensure this equity. Senator Pearce asked if "equitable" was defined somewhere in law? Senator Parnell said no. Senator Adams voiced support to the question by Senator Pearce. He proposed an amendment to amendment #21, line 5, after the word "funding" add "from the State". It should read "...an equitable level of funding from the State to each school within a school district." Senator Parnell OBJECTED. An equitable level of funding would already be achieved via this vehicle. Senator Adams felt it should be stated more directly. By a roll call vote of 2 - 5 (Adams, Donley - yea) (Sharp, Pearce, Torgerson, Parnell, Phillips - nay) amendment to amendment #21 FAILED. Following a brief discussion Senator Adams WITHDREW his objection to amendment #21. WITHOUT OBJECTION amendment #21 was ADOPTED. (at ease) Senator Torgerson asked that amendment #1 be HELD. Senator Phillips concurred. Mr. Cross noted for the committee that transition language changes would change the department's runs. He specifically noted amendment #12. Senator Torgerson said assumptions used should come from the Department of Labor. Co-chair Sharp further said that the change in runs would be affected by three percent. In response Senator Torgerson added that some adjustments have been made. Mike Ford, Legal Services, Legislative Affairs Agency was invited to re-join the committee. Senator Torgerson queried re REAA's and their contribution. Mr. Ford responded that he was still working on this. Money cannot be dedicated that was collected. It would have to be separately accounted for. The formula would redistribute money to all districts accordingly. The money is put into the public school account and then redistributed to the districts. Co-chair Sharp asked how this differs from the local contributions of the municipalities? Mr. Ford said that was correct because they collect their monies and they make their contributions. However, REAA's did not collect money. The State collected from the REAA's. Senator Torgerson said in reality it would be the same numbers, whether dispersed directly back to the REAA's, which cannot be done because of the dedicated fund issue, it would still be the same effect. Mr. Cross explained that the dilemma in providing runs was that the department needed to know what to do with the approximate twelve million dollars of taxes that would be collected from the REAA's. Their understanding that even though there was to be an accounting as to where the money came from it only says that the money would be appropriated to the public school account. Senator Torgerson said it could be directed that "...it may be appropriated back to the REAA's and reduce their State effort by the same amount." The end result would be that the same amount would go into the school fund. Mr. Cross said that if the twelve million dollars were added and then distributed that money was being redistributed to all the districts in the State. Therefore, the REAA's would not get the taxes back that they have collected. They would only get whatever proportion the foundation formula entitled them to of that amount back. This would make a significant difference in the runs. Co-chair Sharp indicated that he knew now the difficulty in the department making a run not knowing what the contribution from individual districts would be. Mr. Jeans explained further. He said as the bill was presently drafted it did make a deduct for the three percent wage tax. Therefore, State aid to those districts would be reduced by that three percent. If that money was dumped back in it was spread across the State and did not go back to the areas that generated the revenue. There is no mechanism in any of the amendments or the current bill to give that money back to the REAA's which generated that revenue. (at ease) Following a brief at ease, amendment #1 was MOVED by Senator Phillips. Senator Adams thought they were still dealing with REAA's. Co-chair Sharp said they would return following this amendment. Senator Adams OBJECTED to amendment #1. By a roll call vote of 6 - 1 (Sharp, Pearce, Donley, Torgerson, Parnell, Phillips - yea) (Adams - nay) amendment #1 was ADOPTED. Senator Torgerson asked about the amount of State aid to be reduced by local effort. Mr. Ford indicated that one had to be careful with semantics because there were two coffers of money to be appropriated by the State. Mr. Cross had a further question for clarification by the committee. He referred to page fourteen, line twenty-eight of the spreadsheet. Could they redraw REAA boundaries? Senator Torgerson said there was no intent to create more REAA's. Senator Adams asked who would collect the three- percent tax? Mr. Cross said they were asking the combined efforts of the Departments of Revenue, Labor and Law to deal with this. Co-chair Sharp thanked the committee and those participating this evening for their diligent efforts. He said they would reconvened the committee again tomorrow morning at 10:00 a.m. and if needed would continue again in the afternoon after the 4:30 p.m. meeting. He cautioned everyone that the committee would create their own fiscal notes if not provided timely by the departments. ADJOURNMENT Co-chair Sharp adjourned the committee until 10:00 a.m. tomorrow. SFC-98 -10- 3/3/98