MINUTES SENATE FINANCE COMMITTEE April 3, 2000 9:05 AM TAPES SFC-00 # 74, Side A and Side B CALL TO ORDER Co-Chair John Torgerson convened the meeting at approximately 9:05 AM. PRESENT Co-Chair John Torgerson, Co-Chair Sean Parnell, Senator Al Adams, Senator Loren Leman, Senator Randy Phillips, Senator Gary Wilken Also Attending: SENATOR RICK HALFORD; SENATOR ROBIN TAYLOR; JEFF JESSE, Executive Director, Alaska Mental Health Trust Authority, Department of Revenue; RONALD HULL, Deputy Director, Division of Employment Security, Department of Labor and Workforce Development; TOM WYLIE, Unemployment Insurance Actuary, Research and Analysis, Division of Employment Security, Department of Labor and Workforce Development; RICHARD CROSS, Commissioner, Department of Education and Early Development; GARY BATER, Superintendent of Schools, Juneau School District; CARL ROSE, Executive Director, Association of Alaska School Boards; KATHLEEN STRASBAUGH, Assistant Attorney General, Governmental Affairs Section, Civil Division, Department of Law Attending via Teleconference: From Delta Junction: DAN BECK, Superintendent of Schools, Delta Junction; From Fairbanks: MIKE FISHER, Assistant Superintendent, Business Finance, Fairbanks School District SUMMARY INFORMATION HB 313-APPROPRIATIONS: MENTAL HEALTH The Committee heard an overview on projects from the Alaska Housing Finance Corporation. The bill was HELD in Committee. SB 289-TECH & VOC EDUC/ EMPLOYMENT ASSISTANCE The Committee heard from the Department of Labor and Workforce Development. The bill was held in Committee. SB 290-PUBLIC SCHOOL FUNDING & EXPENDITURES The Committee heard from the Department of Education and Early Development and representatives from various school boards in the state. The bill was held in Committee. SJR 34-CONST AM: PERM FUND CORP BD/ PUB CORP BD. The Committee heard from the sponsor, adopted a technical amendment and reported the bill from Committee. SJR 40-CONST AM: ELECTION & TERMS OF GOV & LT GOV The Committee heard from the sponsor and the Department of Law. The bill was held in Committee. CS FOR HOUSE BILL NO. 313(FIN) am "An Act making appropriations for the operating and capital expenses of the state's integrated comprehensive mental health program; and providing for an effective date." Co-Chair Torgerson noted that during consideration of the FY 01 operating budget, SB 312, the Committee had previously adopted a committee substitute 1-LS1305\G to SB 313 as a workdraft. He explained the committee substitute had removed all reference to capital projects from the legislation. He said the intent of this meeting was to consider the capital projects receiving funding from the Mental Health Trust Authority (MHTA). JEFF JESSE, Executive Director, Alaska Mental Health Trust Authority, Department of Revenue, gave detail on the items listed on the Mental Health Capital Projects, HB 313 spreadsheet. [Copy on file.] Senior Services Data Integration Project - Department of Administration Mr. Jesse stated that MHTA funds would be used to help fund this new project. He explained the project was to assist the Division of Senior Services to increase efficiency of the division's operations. Telepsychiatry Video Communication System Equipment - Department of Corrections Mr. Jesse told the Committee this project was a continuation of a $75,000 FY 00 project that the trustees are involved in. He said the requested funds would assist the department in upgrading their system. He remarked that the Department of Corrections was a leader in utilizing video conferencing technology to increase their ability to provide psychiatry counseling and supervision to inmates in all the correctional facilities from the central mental health office in Anchorage. He spoke about how this project has been showcased at national conferences as a model program. He added that the program reduces professional and travel costs for the state. He congratulated the department for instituting this program using equipment that has a low "band width" and noted this upgrade would increase the band width to further increase the program's effectiveness. Alaska Psychiatric Institute 2000: Replacement of Existing Facility - Department of Health and Social Services Mr. Jesse stated this was a continuation of the Trustees' process of setting aside MHTA funds to further assist the state in making the transition from the current Alaska Psychiatric Institute (API) into the new facility, which he hoped the negotiations with the charter would be concluded shortly. He stated that the MHTA was working in tandem with the federal funds secured through the assistance of US Senator Ted Stevens. Alaska Psychiatric Institute Stop-Gap Repairs - Department of Health and Social Services Mr. Jesse bemoaned, "unfortunately this is not a new project at all." He continued that the stopgap repairs have been an on-going concern although the MHTA has been able to secure a matching program to utilize Alaska Housing Finance Corporation (AHFC) receipts. He explained the intent of this project is to keep the facilities operating as long as possible or until the new facility was available for occupancy. Coordination and Resource Sharing Among Mental Health Services Providers - Department of Health and Social Services Mr. Jesse shared that this was an exciting new project for the MHTA. He explained that through the auspices of the Governor's Council on Disabilities and Special Education the proposal was to review how the state operates with all the beneficiary nonprofit groups and providers. He said the project hopes to identify whether efficiencies could be gained and how the programs could become more results based. Another intent, he added was to identify whether any services can be integrated and the savings of which could be reinvested into further services for the beneficiaries. He summarized that this project was to improve the infrastructure of the mental health grant system. Senator Leman thought this item seemed more like an operating item than a capital project and asked what specifically would be provided with the $100,000. Mr. Jesse replied that the governor's council proposed convening a "think tank" of representatives of the four boards involved with the MHTA to develop a list of areas within the grant structure and the service provision system to submit to an independent contractor. This contractor, he continued would evaluate and make a series of recommendations as to how the MHTA could improve the efficiency and effectiveness of that system. Mr. Jesse suggested the reason this project was classified as a capital project was because it was unclear whether the work could be completed in one fiscal year. He said the MHTA thought that listing this as a capital project would give the greatest flexibility. Senator Green asked if it would be possible under the governing federal mandate to streamline and merge some of these services into one group rather than break them down by the four distinct constituency groups. Mr. Jesse said that was one of the goals of the project, to identify what areas have such flexibility. He cautioned that some programs have strict specific membership requirements and missions from the federal government. Fairbanks - Reopen Fahrenkamp Residential Facility - Department of Health and Social Services Mr. Jesse explained the goal of this project was to use the center for its original purpose, as a residential diagnostic treatment center for adolescents. He relayed that for many years, the facility has been used as office space and adolescent outpatient care by the Fairbanks Mental Health Center. However, he stressed there is a desperate need for residential services for this population. He noted this is a matching funds program between the trust and the state using AHFC receipts in order to make the physical modifications to the portion of the center that will house the adolescents and to but necessary equipment. Fairbanks Community Mental Health Center Relocation - Department of Health and Social Services Mr. Jesse pointed out that this project exclusively utilizes MHTA funds to assist the center, which is currently located in the Fahrenkamp facility and has been paying only one dollar per year as rent. Because of the plan to reconvert the Fahrenkamp to a residential facility, he explained that these funds are to relocate the mental health center and to pay additional rental costs for the first year. He stated that the hope in the next year was to include the increased operating costs due to space rental into their operating budget. Otherwise, he added the center would need to reduce its service capacity. Housing Modifications for Mental Health Trust Beneficiaries - Department of Health and Social Services Mr. Jesse talked about how this continuing project continues the relationship that the trust has developed with the AHFC to identify ways to deliver housing modifications for beneficiaries. He described some of the people served, such as Alzheimer patients needing their house modified so they could remain in their home. He stressed that this has been a successful project in handing out relatively small grants. Mental Health Grants - Essential Program Equipment - Department of Health and Social Services Mr. Jesse told the Committee that the trust had originally proposed this on-going project as a 50-50 matching program with the state. However, he said that the Governor's Office was only able to identify $50,000 of general funds to make available. He stressed that the trust deemed these grants particularly to smaller mental health centers, are essential to maintaining their capacity to operate. He listed computers and software as some of the items purchased using these grant funds. Mental Health Grants - Facilities Renovation and Deferred Maintenance - Department of Health and Social Services Mr. Jesse continued that this project is similar to the previous in that it is an on-going program also proposed to have a 50-50 general fund match, but that this does not have the adequate general fund money to meet the match. He explained the grants are used by non-profit organizations for facility renovation and deferred maintenance. He asserted these projects are a good investment in maintaining the infrastructure of the mental health program. Spirit Camp Facility Development - Department of Health and Social Services Mr. Jesse explained this new project to assist what has already been proven to be an effective culturally appropriate way to allow local Native communities to take responsibility for their own programs. He stated this project helps communities develop programs that build upon the cultural values and strengths of those communities rather than simply imposing a more Anglo approach. He told of efforts made on a smaller scale, saying that this is the largest culturally relevant treatment project undertaken by the trust. Transitional Housing for Recovering Substance Abusers - Department of Health and Social Services Mr. Jesse stated that the purpose of this project is to assist substance abusers who have completed treatment but still need some supervision during a transition period into their independent living situations. Mental Health Trust Land Development and Value Enhancement - Department of Natural Resources Mr. Jesse stated that this is a continuing project and a permanent part of the MHTA land office, to hire contractors for subdivision sales, timber sales. He said the contracting-out of these services is done in lieu of hiring additional staff. AHFC Beneficiary and Special Needs Housing - Department of Revenue Mr. Jesse explained this is also a continuing project, but at a smaller amount this year. He stressed that this is a critical part of the mental health program. He spoke of "tremendous strides" the trust has made in the ability to deliver treatment. However, he qualified the treatment system often does not give full consideration to all the facets of a person's life that are necessary to be independent and become productive members of society. He identified the need for developing safe, affordable housing as one of the most critical items for successful recovery. Senator Green asked if this was temporary housing. Mr. Jesse replied that a variety of mechanisms have been used to provide housing. He referred to a "Structured Production Model" of developing supported housing. He explained that in the past, the operational side of the mental health program had operational money but didn't know how to develop a housing project. On the other hand, he pointed out, AHFC knew about housing but not how to deliver necessary support. This project is to blend the two groups together to supply adequate housing facilities and also deliver services, according to Mr. Jesse. He added that this project includes a plan to assist beneficiaries into a home ownership situation. He stated that research shows that an investment in home ownership is a powerful mental health tool. Senator Green suggested attaining additional support from the residents. She asked if the housing provided included monitoring to ensure the participants were safe and getting necessary treatment. Mr. Jesse affirmed. AHFC Homeless Assistance Program Mr. Jesse stated this is also a continuing project and is instrumental in getting services to the most difficult to serve populations in the state. He told of how many of these people are not only unconnected with the normal mental health services systems, but that they "often don't want to be a member of the club." He detailed the difficulties this segment of the population has in getting employment and meeting other aspects of self-sufficiency. Senator Phillips asked how many people are served in this program. Mr. Jesse began his response. AT EASE 9:26 AM / 9:28 AM Mr. Jesse did not have the exact data with him but noted the performance measures for this project rely heavily on how many people are served by the program. He said he would supply the data to the Committee. Senator Phillips asked for a breakdown showing the different regions of the state. Co-Chair Torgerson asked if this funding request would supply the same level of support as the previous year. Mr. Jesse replied that the $250,000 AHFC funding amount was the same as the previous year and that the $200,000 of MHTAAR receipts is new. Coordinated Transportation and Vehicles - Department of Transportation and Public Facilities Mr. Jesse then told of this successful partnership project that also utilizes federal transportation funds. He described different non-profit groups each having a van to serve only those in their mental health program. He said this was because of the difficulties involved in determining who would own, maintain and operate these vehicles. The intent of this program, he explained, was to combine the use of these vehicles to serve more than one non-profit entity. He said that this project provides up- front money to allow communities to establish a local coordinated transportation system. He added that the funding would also be used to purchase new vehicles where necessary. Planning for Juneau Senior Daycare Center $100,000 Mr. Jesse explained this item does not appear on the spreadsheet because the governor had determined there was not an adequate general fund match for the construction costs. Mr. Jesse stated that the trustees want to utilize MHTAAR funds for the planning process in anticipation that once the community is able to develop a plan and identify more accurate costs, there may be a variety of fund mechanisms available to build the facility. Co-Chair Torgerson asked if the witness was working with a Committee member to propose such an amendment to the budget. Mr. Jesse believed so. Co-Chair Torgerson announced a committee substitute would be prepared to reflect the items on the spreadsheet and he explained the amendment procedure. Co-Chair Torgerson ordered the bill HELD in Committee. CS FOR SENATE BILL NO. 289(L&C) "An Act establishing and relating to the Alaska Board of Technical and Vocational Education; and providing for an effective date." This was the second hearing for this bill in the Senate Finance Committee. At the previous hearing, the Committee adopted a committee substitute, 1-LS1525\M and Co-Chair Torgerson asked the Department of Labor and Workforce Development to detail how the program works and its relation to language of the committee substitute. AT EASE 9:33 AM / 9:35 AM TOM WYLIE, Unemployment Insurance Actuary, Research and Analysis, Division of Employment Security, Department of Labor and Workforce Development, gave a presentation using a handout. [Copy on file.] He addressed the "Basic Parts of Unemployment Insurance (UI) Tax Rate Calculation" flowchart. He detailed the "First Stage: Affects Employers and Employees" shows the relationship of unemployment benefit costs to total wages and taxable wages, and the "Second Stage: Affects Employer Only" details the solvency of the trust fund and if necessary either adds to or subtracts from the UI tax rate. Mr. Wylie explained that the calculations takes total benefit cost over a three year period and defines them by payroll tax cost, which then provides a ratio. He continued that the ratio is then multiplied by the relationship between taxable wages and the wage of pay by employers. He noted that only certain portion of wages is taxable. He established that the portion is $24,800 per year as set in state statute. Once that average is produced, he said the amount is divided into an employer tax and an employee tax with the employer paying 80 percent and the employee paying 20 percent of that tax. Mr. Wylie then detailed the second stage saying the trust fund is examined to determine its solvency in relationship to total payroll in the state. He told of a state UI statute that sets out a process of dividing the trust fund by total payroll and comparing it to a schedule. If the trust fund has fallen below 3.3 percent of total payroll, Mr. Wylie said an add-on tax is placed on top of the employer's tax, but if the fund is above 3.3 percent, the employer's tax is reduced. He noted that the employee tax is not affected by the trust fund solvency. Co-Chair Parnell asked when the last adjustment was made to the employer's tax rate. Mr. Wylie replied that the rate was adjusted downward in the previous year and that there was no need for an adjustment in the current year. Co-Chair Torgerson asked the reason anyone would receive a higher rate and whether experience was a factor. Mr. Wylie explained how employers were placed into one of 21 rate classes depending on their experience with unemployment, half of which were above the actual tax rate and half were below. Mr. Wylie then stated that the committee substitute does not interface with the UI tax rate. Instead, he explained it proposes a new tax of .15 percent on both the employer and the employee using the UI mechanism to set the taxable income amount and also using the UI office to collect the taxes. At the request of Co-Chair Torgerson, Mr. Wylie then explained the STEP program. He told how current statute requires diverting 0.1 percent of the employee's taxable wages from the trust fund into the STEP program. The employee's UI tax rate is then credited and the employee has met the UI contribution requirement. This information was detailed on the second page of the handout. Co-Chair Torgerson asked if an amount would be collected for vocational training assessment separately from the usual UI mechanism. Mr. Wylie affirmed and stated that the UI tax office would collect this tax because it is the most convenient method, but that the funds would not be deposited into a separate account than the UI trust fund. He described how the money would be diverted into this account. Co-Chair Torgerson asked for verification that the employee's deduction would not be affected. Mr. Wylie assured him that was correct. Co-Chair Torgerson began to address where the adjustment would be made to allow for the vocation training assessment fund. Mr. Wylie stated that further implications of this additional fund would be the resulting diversion away from the UI trust fund and the lower collection into the trust fund. He noted the impact would not be seen during the first stage of the tax collection, but would be seen in the second because the calculations would show a need to increase the employer's tax rate to build up the balance of the trust. RONALD HULL, Deputy Director, Division of Employment Security, Department of Labor and Workforce Development, noted the committee substitute is not like the STEP program because there is no credit and requires an additional add- on tax. He stated there are two different options to fund the vocational training assessment program, one that does not affect the UI tax rates and the other that does. Co-Chair Torgerson said that the UI tax rate would not necessarily be affected by the add-on tax if 0.2 percent of the employee's tax was used and depending on the strength and solvency of the fund. Mr. Wylie agreed and explained the likelihood that once the program was established the tax for the vocational fund would be indiscernible from the many other factors influencing the amount of the total UI tax. Senator P. Kelly asked how the credit was calculated for the employee portion of the tax. Mr. Wylie clarified this bill has no credit and he explained the current STEP process. He said that Co-Chair Torgerson approach, as proposed in the committee substitute, was to fund the vocational training component differently. There was further discussion between Senator P. Kelly and the witness regarding the current calculation of the UI taxes. Senator Phillips referred to page 6 of bill and asked if state or federal law prohibited private schools from receiving funds generated from this source. Co-Chair Torgerson stated that the money collected this year would be disbursed under the current method and the money collected the next year would go to accredited institutions. He stressed that there were no limitations on private schools receiving the funds other than that they must be accredited. Senator Phillips then asked why there was a special provision for a transitional period. Co-Chair Torgerson responded that he used his discretion as chair in making that decision. Senator Phillips asked the witness to look into whether there were any state or federal laws restricting which schools received these funds. Senator Wilken referred to the flowchart and asked that even with the decrease of 0.2 percent funding the trust fund, if the balance went down and total wages increased, there would be no difference to the amount taxed. Mr. Hull replied that because the Alaskan economy varies greatly over time, many of the changes to the tax amount could be "overwhelmed by economic forces within the state." Therefore, he said Senator Wilken's question couldn't be answered unless all other factors were equal. He used the current year as an example of how the proposed provisions would affect the tax amount. He stated that if employment greatly increased and unemployment was reduced, the trust fund might then increase on its own and there would be no need to increase the tax. Tape: SFC - 00 #74, Side B 9:55 AM Mr. Hull continued explaining how different factor affect the trust fund. Senator Wilken commented that as a small business employer he was not interested in imposing a higher tax rate, but at the same time, wanted a fully trained workforce. He noted that this legislation does not necessarily increase the tax rates automatically and that they could actually decrease. Mr. Wylie agreed. Co-Chair Torgerson ordered the bill HELD in Committee and announced his intention to amend the bill to mirror the STEP program. He stated it was not his intent to jeopardize the trust fund. SENATE BILL NO. 290 "An Act relating to state funding for transportation of public school students; and providing for an effective date." This was the second hearing for this bill in the Senate Finance Committee. The original version of the bill, 1- LS1555\A, was unchanged. DAN BECK, Superintendent of Schools, Delta Junction, testified via teleconference from Delta Junction to ask what would happen if a new route were established and if the district would have to pay 50 percent of that cost. Co-Chair Torgerson answered that according to the legislation, the district would pay 50-percent of all new costs incurred after the FY 01 base was established. Mr. Beck stated that he therefore did not support the bill. He said that during this time when the state is trying to put more money directly into instruction, this bill would hamper that effort. Co-Chair Torgerson commented that recent Alaska Board of Education action gave districts more flexibility in classifying administrative costs as instructional. The board adopted regulations allowing the entire administrative expenditure category of the uniform accounting system to be considered as instructional rather than administrative. Amendment #1: This amendment inserts new language into the title of the bill and adds a new section as follows: Page 1, line 1, following "students;": Insert "and to minimum expenditure for instruction;" Page 1, following line 13: Insert a new bill section to read: "Section 2. AS 14.17.520 is amended to read: (a) A district shall budget for and spend a minimum of 80 [70] percent of its school operating expenditures in each fiscal year on the instructional component of the district budget." New text underlined [DELETED TEXT BRACKETED] [Note: This amendment was never offered but was discussed.] MIKE FISHER, Assistant Superintendent, Business Finance, Fairbanks School District, testified via teleconference from Fairbanks talked about the district's pride in the low percentage spent on administrative costs and how this bill would adversely affect their efforts. He spoke of the district's efforts to meet an 80-percent for instruction goal, saying that for some districts this figure could be unrealistic. Co-Chair Torgerson agreed that 80 percent of funds as a minimum allowed for instructional costs was "a shot in the dark." He again referred to the Board of Education's actions, which essentially lowered the percentage to 75.5. Senator Wilken asked the witness if there was a principal for every school. Mr. Fisher responded there is. Senator Wilken wanted to know who decides on the number of assistant principals and support staff for the assistant principals. Mr. Fisher answered the number of assistant principal positions was a school board decision and that the principal of each school has discretion as to how many support staff positions are incurred. He noted these positions along with the principal are a strong component of the school level administration. Senator Wilken spoke of the accounting methods for showing these administrative costs. He asked if a new category "405" could be added to list assistant principals and their support staff separately. Mr. Fisher assured that the district would have no problem accounting for those positions separately. He said that it could affect the instructional percentage by 2.5 to three percent. Senator Wilken asked if the witness thought that most other school districts in the state could also follow this method. Mr. Fisher replied that most districts could adjust their system to separately account for their assistant principals and support staff. Senator Wilken commented that was the same issue he and Co- Chair Torgerson talked about when testifying before the Board of Education. Senator Wilken stressed this was simply a function of cost accounting to isolate the cost of administration. He warned that if the legislature allows school districts, school boards and principals to determine what qualifies as an instructional component, the system is opened up to creative accounting. That was the reason he was in support of a sub-account to account for principals and assistant principals. Senator Green asked if this matter was before the Committee. Co-Chair Torgerson replied that a proposed amendment was distributed but that a motion was not on the table. RICHARD CROSS, Commissioner, Department of Education and Early Development, spoke to the proposed amendment to increase the percentage of expenditures for instructional purposed from 70 percent to 80 percent. He urged the Committee not adopt the amendment, in part because the department has supported the legislature's efforts to reduce administrative costs. He stressed that school districts did not support this provision in SB 36 from the 20th legislative session, saying it was an oversimplified answer to a complex problem. He said the department could not oppose the concept of moving administrative expenditures to instructional areas. Mr. Cross disagreed with Senator Wilken's statement that a sub-account for assistant principals and support staff is a matter of cost accounting, saying it is instead a matter of how schools work. He stressed that the principals directly supervise the teachers, which improves the quality of instruction. He stated that creative accounting is already occurring with some districts that list their assistant principals as head teachers. He said that head teachers are not required to hold an Alaska Type B certificate but that without this certificate, the teacher cannot evaluate other teachers. As a result, he lamented, teachers are being evaluated by people who do not work in the same school building but rather central office administrators, thus there is no direct supervision. He cautioned that this is not effective supervision of instruction. He said that the department is attempting to remedy this by including those positions that are directly involved in the supervision of instruction as a part of the instruction component. The current categories are too broad in his opinion. He suggested further delineation, as proposed by Senator Wilken to separate those administrators that directly supervise instruction. Other costs that are not directly related to instruction, he felt should not be classified as instructional. Mr. Cross spoke of the progress made with the school districts in their willingness to strive toward the 70 percent for instruction provision. He urged that this sub- account be created and that those costs be considered instructional to allow the districts to meet the 70 percent goal. He warned that by simply raising the percentage, most districts would be unable to meet that goal and that so many would require waivers, the test would not be taken seriously. Co-Chair Torgerson interjected saying that the witness's proposed sub-account method was not what the Board of Education implemented. Instead, he admonished, the board allowed the entire "400" component, to be considered instructional, which includes supplies, travel expenses and all support staff working in a central administrative facility. He stated that if the board had made allowances only for principals and assistant principals, the proposed amendment would not have been drafted. Mr. Cross defended the board's action saying the "400" component was not delineated at this time to allow for specific instructional expenditures. He said the board gave specific direction to the department to break down the expenditures afterwards to ensure that those administrators directly involved with instruction were classified separately. Co-Chair Torgerson accused the department of counting the administrative costs twice, once as instructional and again as administrative. Mr. Cross disagreed with the assessment. Co-Chair Torgerson asked what deductions are being made to teachers and instruction costs versus administrators and administrative costs under the current school budget deliberations. Mr. Cross responded that school districts were making decisions to reclassify personnel in include them in instruction costs. He thought those decisions were not in the best interest of improving the quality of teacher performance. He gave the replacement of assistant principals with head teachers as an example. He stressed that the department's interest was not cost accounting but placing those administrators who make decisions regarding improving teachers' performance in the school rather than at a central office. Senator Wilken gave a scenario of a district currently at 68 percent for instruction and its attempt at reaching 70 percent the next year by simply hiring an assistant principal and support staff and classifying them as instructional expenditures. Mr. Cross replied that would be a decision that could work under the Board of Education's recent action to allow principals to be classified as instructional expenditures. Senator Wilken asked if the department was working to develop sub-accounts for principals and support staff within the "400" category. Mr. Cross responded that the Board of Education when adopting the aforementioned regulations, gave the department specific instructions to separate the costs of those personnel directly related to instruction. He said the board does not agree that the other costs should be considered instructional and directed the department to report back with the specific figures. Co-Chair Torgerson remarked that the board adopted regulations to allow the entire "400" category anyway. Mr. Cross agreed the board did allow the entire category, but that it was the only option available to them. Senator Leman asked if the Board of Education's deliberations suggested that a principal could be both supervising instruction and also performing other non- instruction related administrative duties. He wanted to know if accounting of the position could be broken down to reflect the amount of time spend on each area. Mr. Cross answered that the breakdown can be done and that principals in many small schools supervise instruction and also directly provide instruction. In larger schools, he said, it was unreasonable to expect one principal to provide supervision to all the teachers and that a vice- principal is also necessary to assist with supervision. He continued that an additional vice-principal might be necessary to provide discipline or over see other activities. He stressed that school leaders' efforts to improve the quality of teaching are an important part of instruction. Senator Leman asked if those personnel who perform duel roles could break down the time spent on each function. Mr. Cross responded that kind of cost accounting can be done, but should be avoided. He talked about federal requirements for timesheets and the need to account incremental minutes for each federal program. He cautioned that too much time spent on cost accounting wastes money and negates any efficiency gained. Senator Adams commented that while we all want the most money spent in classroom as possible, there were problems getting funding for students in rural Alaska. He asked how many waivers were granted in the previous year for those districts meeting 65 percent of expenditures to instruction. He then asked if this amendment were adopted how many waivers would be necessary. Mr. Cross believed that 13 waivers were considered in the current year to schools meeting 65 percent of expenditures for instruction. Senator Adams wanted to know how many school districts met the 80 percent to instruction criteria. Mr. Cross answered that almost all of districts met this goal. Senator Green commented that all staff is included in the formula when miscellaneous school expenditures are calculated using the Pupil Teacher Ratio (PTR) calculations, a process she has questioned. She suggested that if the PTR calculation process was used in preparing SB 36 it may have been a mistake. Co-Chair Torgerson replied that the calculations used were recommended in the McDowell study on school funding and that he did not think PTR was considered. Senator Wilken noted that the Committee had found in its consideration of SB 36, that four school districts had more money going to administration than to the classroom. Senator Wilken next relayed the two important elements of cost accounting. First, he said is the need for clear definitions of the uniform chart of accounts and the second element is to analyze as a function of time and track changes. Therefore, he stated that if the legislature allows school districts, school boards or individual schools to vary the definitions, the changes over time are meaningless. He understood the importance of assistant principals, but thought those positions need to be in a sub-account category that could be observed and compared against other districts. For Senator Green's benefit, Mr. Cross repeated the earlier conversation regarding the B certificates required by evaluating teachers but not by head teachers. He again stressed the department's belief that teachers need to be supervised on a daily basis by someone working in the same school rather than a removed central administration facility. Co-Chair Torgerson noted that some rural schools were showing zero percentage of expenditures spent on administrative costs because they were already shifting their accounts. Senator Green wondered if the administrative percent includes superintendents hired under contract. GARY BATER, Superintendent of Schools, Juneau School District, spoke in opposition to the bill. He stressed that the hardest addition to a school district's budget is an administrative position. He stated that whenever cuts are proposed, the public clamors to eliminate administrators. He thought school districts were under constraint with or without the 70 percent for instruction restrictions. He stated that SB 290 is about shifting future increases of pupil transportation to local school districts and away from the state. He said pupil transportation was an essential component of education. He thought the current law has worked well. He believed the Juneau School District's rate of growth and pupil transportation costs have been below the rate of inflation once adjusted for increased enrollment. Senator Wilken asked how the school district views its participation with pupil transportation. Mr. Bater responded that the district does not make any changes without approval from the Department of Education and Early Development. Rather, he said the district proposes to the department for approval of a new route when enrollment increases and busses become overcrowded. He asserted the department asks tough questions and is thorough in its review. He detailed the process to obtain a new bus route. He stated that the district views itself as an agent of the department. Senator Wilken and the witness discussed the levels of bus routes and the ability to change from a three-tier system to a two-tier system and the expense involved. Senator Green pointed out that the state is not required to cover the pupil transportation costs, noting the word, "may" rather than "shall" in statute. CARL ROSE, Executive Director, Association of Alaska School Boards spoke specifically to the issue of requiring the districts to co-pay any increased costs, saying it was inappropriate at this time. He spoke of aligned contracts, which were too recent to see any realized savings. He also stressed how funds allocated to classroom instruction would be further stretched to cover pupil transportation costs. He called the bill an unfunded mandate. Mr. Rose continued that when the co-pay issue is raised in the future, the foundation formula should be adjusted to increase revenue to cover the district's costs of pupil transportation. He suggested that an incentive should be created to allow any realized pupil transportation savings to be retained by the district. Co-Chair Torgerson interrupted to ask if the witness believed that a 48 percent increase to the cost of pupil transportation was entirely attributable to an adjustment to the contracts. Mr. Rose responded that he thought there were a number of reasons the costs increased. He pointed out that other costs incurred in the previous contracts were omitted from the new contracts. Co-Chair Torgerson said he has offered to all parties the opportunity to present a better system. However, he said there has been no suggestions other than having the state pay the entire cost and if savings can be identified with the contracts, having the state pay to the district the difference. Mr. Rose appreciated the co-chair's concerns but warned about later costs and an unfunded mandate. Mr. Rose commented on the accounting of assistant principal positions separately saying he agreed with this suggestion, but that he did not see any advantage to a breakdown between assistant principal and principal positions. He also opposed changing the total instructional percentage to 80 percent of expenditures. He asked the Committee to have patience in allowing the 70 percent goal to be reached. Amendment #2: This amendment inserts language on page 1, line 13, following "district" as follows: "; the 50 percent limitation imposed under this paragraph does not apply to student transportation system operating costs that are incurred as a result of an increase in student enrollment" [Note: This amendment was never offered but was discussed.] Mr. Rose stated that he supported this amendment. He commented that the overall impact of the bill was yet to be seen and listed figures of recent student enrollment. Co-Chair Torgerson asked for explanation of the witness's implication that costs have been passed along to local communities. Mr. Rose listed the reduction of state revenues provided to the school districts and the possible reduction in municipal assistance grants. He predicted that the local residents could be required to pay an additional $6 million. Co-Chair Torgerson asked if the witness was suggesting throwing the entire foundation funding formula out. Mr. Rose clarified that was not his suggestion but that the association wanted a certain percentage of funds spent on instruction. However, he stated that the state is allocating less money to districts by the state and that the percentage of local contributions is subsequently rising. Mr. Rose then asked the co-chair if SB 105, relating to public school buildings was being considered for inclusion in SB 290. Co-Chair Torgerson answered that it may be. Co-Chair Torgerson ordered the bill HELD in Committee. Tape: SFC - 00 #75, Side A 10:42 AM. CS FOR SENATE JOINT RESOLUTION NO. 34(L&C) Proposing amendments to the Constitution of the State of Alaska relating to departments, agencies, and public corporations. This was the first hearing for this bill in the Senate Finance Committee. SENATOR RICK HALFORD stated that this issue of appointing officers to state-owned corporations has been before the legislature many times since the creation of the permanent fund. He directed the members' attention to a list of all state-owned corporations. [Copy on file.] Senator Halford referred to an amendment considered by the Senate Labor and Commerce Committee sponsored by Senator Drue Pearce relating to "overhang commissioners." Although this amendment was not adopted, he stated a related title change was inadvertently made to the legislation. Senator Halford then addressed the constitutional amendment itself explaining how the legislature confirms members to State Of Alaska boards and commissions. However, he stressed, the legislature has no control over the appointment of members to the boards of directors of the Permanent Fund Corporation, the Alaska Housing Finance Corporation (AHFC), the Alaska Industrial Export Authority and the other state-operated corporations. Senator Halford stated that of all the relating constitutional amendments he has seen attempting to address this issue, this was the simplest, the most straightforward and the most justified. He surmised that if corporations of the size and scope of the aforementioned existed at the time of statehood, the framers of the constitution would have included them with the board and commissions' requirements for legislative confirmation of membership appointments. Senator Halford assured that this legislation makes no major changes to the constitution other than to provide for the legislative confirmation of appointments to the boards of state-owned corporations. Senator Halford detailed the previous proposals made in the Senate to require these legislative confirmations. Senator Phillips referred to language on page one, line ten, stating that members "may be removed as provided by law" and asked if the standards are the same for the corporations as they are for the other boards and commissions already included in the legislative confirmation process. Senator Halford responded that the standards are not the same, and that they are the standards provided in the law that created the particular state-owned corporations. He said that some board member dismissals can be made only "for cause" and others can be made at the pleasure of the governor. Senator Leman supported the intent of the sponsor and agreed this legislation is simple and necessary but he argued that it was not the simplest and most necessary. Senator Halford responded that he believed if the framers of the state constitution had an indication of the magnitude of these corporations, they would have written the legislative confirmation provision directly into the constitution. He stated that he had not heard opposition by those framers on this matter as had been heard on other matters. Co-Chair Parnell read language from the sponsor statement, "It would ensure that the people who control Alaska's largest assets are subject to a formal appointment, confirmation and removal process, not the whim of a newly elected governor." He asked if the sponsor was aware of any problems with these boards. Senator Halford shared that the past two governors had entirely changed the board members of the permanent fund, while the previous governors did not make those drastic changes. While he did not disagree with any of the actual appointments, he did not believe the entire management team of a large corporation should be changed all at once. He pointed out that during a governor's administration, several board member terms would expire and therefore, the governor still has a great impact on the makeup of these boards. Co-Chair Torgerson asked about any necessary statutory changes to implement this constitutional amendment. Senator Halford replied that the Department of Law had made recommendations and that there are certain political implications of this legislation. He stated that the larger corporations would be subject to legislative confirmation but that exemptions could be made for some of the smaller corporations. Senator Adams asked why the legislation includes the Alaska Railroad Corporation and the AHFC when the only board with a significant amount of money under its authority is the Permanent Fund Corporation. Senator Halford responded that there was a strong belief that any entity that handles millions of dollars should have some oversight. He gave details on the large holdings of the railroad corporation. Amendment #1: This technical, conceptual amendment deletes "department, agencies and" from the title on page 1, line 2 of CS SJR 34 (RES). Senator Phillips moved to adopt the amendment. There was no objection and it was ADOPTED. Senator Phillips offered a motion to report from Committee, SJR 34, 1-LS1373\G, as amended. Without objection, the resolution MOVED FROM COMMITTEE. SENATE JOINT RESOLUTION NO. 40 Proposing amendments to the Constitution of the State of Alaska providing that the governor, United States senators, United States representative, and electors of the President and Vice-President of the United States be elected by a majority vote. This was the first hearing for this bill in the Senate Finance Committee. SENATOR ROBIN TAYLOR expressed that in light of elections won by candidates, who received less than a majority of the votes, he believed the constitution should be amended to require a winning candidate to secure more than 50 percent of the votes. Senator Taylor stipulated that this amendment would result in a runoff election should a candidate receive less than 50 percent of the ballots cast. Senator Taylor stated that he supported the resolution, which he said was sponsored by the Senate Judiciary Committee at the request of the Senate Majority. Co-Chair Torgerson asked why the president and vice- president were included in this resolution. Senator Taylor replied that the president and vice- president are actually elected through the Electoral College and that the delegates themselves are elected. He asserted that the delegates should receive a majority of the votes as well rather than a plurality. Senator Phillips asked for clarification of the definition of "majority" in the resolution. Senator Taylor answered a majority is 50 percent plus one vote. He did not know if the definition was specifically described in state statute, but argued this is what majority means. Co-Chair Torgerson said he inquired on the definition of majority from Department of Law and was supplied with the same answer as listed in a Black's Law Dictionary and others. KATHLEEN STRASBAUGH, Assistant Attorney General, Governmental Affairs Section, Civil Division, Department of Law, brought three items to the Committee's attention. First, she stated was the definition of majority, which caused confusion among others besides members of the Committee. She suggested that the definition should be detailed in the constitution along with this amendment. The second issue Ms. Strasbaugh brought up was the language on page 1 line 16, through page 2, line 1 of the resolution stipulating that the legislature determines the procedure for arriving at a majority vote. She cautioned that this language could give the legislature more latitude than the resolution drafters intended. Ms. Strasbaugh continued with the third item concerning the delegates to the Electorate College. She referenced AS 15.30 that stipulates "a vote for the president is a vote for the elector." Article 5 Section 1 of the Alaska Constitution relates to the election of the president and the vice-president. She warned against enshrining the electorate in the constitution and then have the Electorate College extinguished, which she stressed, is a threatened possibility. She suggested leaving the existing language regarding the election of the president and vice president unchanged in the constitution. Senator Adams asked if this resolution is a constitutional amendment or a revision. Ms. Strasbaugh replied that the full implications of the outcome of Bess vs. Ulmer were not yet known and that this constitutional amendment litigation could change the resolution from an amendment to a proposed revision. She commented that this legislation looked simple but that it does propose changes to the state's electoral process, which might have other affects. Senator Adams wanted to get a legal opinion on whether this resolution is considered an amendment or a revision. He stressed that without an opinion, a "gray area" would exist regarding this issue. Co-Chair Torgerson commented that until the Supreme Court has ruled on the case, he thought it would not be possible to get a legal opinion. However, he requested the department try to prepare an opinion. Co-Chair Torgerson requested that Senator Taylor prepare answers to the questions posed by the department and he ordered the bill HELD in Committee. Co-Chair Torgerson recessed the meeting to the call of the chair at 11:00 AM. ADJOURNED Senator Torgerson adjourned the meeting at 2:10 PM. SFC-00 (28) 04/03/00