JOINT SENATE HEALTH EDUCATION AND SOCIAL SERVICES COMMITTEE AND SENATE FINANCE COMMITTEE January 28, 1993 9:10 A.M. HESS MEMBERS PRESENT Senator Steve Rieger, Chairman Senator Bert Sharp, Vice Chairman Senator Loren Leman Senator Johnny Ellis HESS MEMBERS ABSENT Senator Mike Miller Senator Judith Salo FINANCE MEMBERS PRESENT Senator Drue Pearce, Co-Chairman Senator Steve Frank, Co-Chairman Senator Tim Kelly Senator Steve Rieger Senator Bert Sharp Senator Jay Kerttula FINANCE MEMBERS ABSENT Senator George Jacko OTHER MEMBERS PRESENT Senator Suzanne Little COMMITTEE CALENDAR The Mechanics of the School Foundation Formula presented by the Alaska Association of School Business Officials WITNESS REGISTER Barbara Martin, Assistant Superintendent for Business & Finance Fairbanks North Star Borough School District P.O. Box 71267 Fairbanks, Alaska 99707 Richard Swarner, Executive Director of Business Management Kenai Peninsula Borough School District 210 Fidalgo Avenue Kenai, Alaska 99611 Laraine Derr, Director of Business Juneau City Schools 155 S. Seward Street Juneau, Alaska 99801 ACTION NARRATIVE TAPE 93-2, SIDE A Number 001 SENATOR PEARCE called the Joint Senate HESS Committee and Senate Finance Committee meeting to order at 9:10 a.m. and announced they would begin the presentation with Barbara Martin, Assistant Superintendent for Business & Finance, Fairbanks Public School District. MS. MARTIN said the purpose of the presentation was to create an understanding of the formula and answer questions, not to take positions on issues. She said there are two types of school districts in Alaska - the municipal school district and the REAA. Municipal school districts are governed by the School Board and receive funding primarily from their local municipalities. An REAA is governed by the Board of Education and gets most of its funding from the State of Alaska. She said that no matter what kind of school district you are, 50% - 90% of your budget goes to salaries and benefits. MS. MARTIN explained their budgeting process saying they decide each October how many children would be in the school district next year. By April 1 they have to give a budget to the local government which must decide the bare minimum they are going to give the schools by April 30. By the middle of May they know how much money the legislature has appropriated so that by May 31 they know how much they have to work with and then they submit their budget to the Department of Education where it may be further adjusted for possible administrative cuts. Number 89 The formula program is based on instructional units which in theory is the cost of running a class room. Calculation of units is done in a variety of ways depending mostly on the size of the school district. They get extra units for students with special needs, bilingual services, and vocational education. Number 178 RICHARD SWARNER, Executive Director of Business Management, Kenai Peninsula, described different funding communities - the differences being mostly in accessibility which in rural Alaska can be by four wheeler, boat, or airplane. The reason for separate funding communities is because of the big difference in the cost related to accessibility. Number 214 SENATOR PEARCE asked if there was a legal definition of a funding community. MR. SWARNER answered that a 20 mile radius constituted a funding community according to the old formula. There is discussion of putting in a 45 mile radius in the new formula. MS. MARTIN, with the aid of an overhead projector, showed a comparison of two districts with the same number of units with drastically different enrollment and characteristics so they could see the advantages to both kinds of funding. Number 274 LARAINE DERR, Director of Business, Juneau City Schools, interjected that the area cost differential was introduced with approved school funding legislation back in the 1970s. She explained the programs may be the same generated under the units, but the costs differ depending on the location and size of schools. Number 353 MS. MARTIN said that after you establish basic need, the next thing you calculate are the deductions. The first one is PL874 which are funds received from the federal government for the impact of federal and Indian lands that can't be taxed. These are funds that are in lieu of taxes. Students are either A students who receive a lot of money or B students who aren't worth a lot of money as per the formula. She said the reason to deduct the PL874 is to equalize the program in terms of funding. SENATOR FRANK asked if the REAAs that don't have a local match for funding have 90% of their PL874s deducted? MS. MARTIN answered yes. Number 388 SENATOR RIEGER asked if all the districts that contribute more than the required minimum get their pro rata share of that pot. MS. MARTIN explained it is not money they compete for, because it's there based on the characteristics of land use. For instance, if you don't have any federal land in your district, you don't get a PL874. Number 412 RICHARD SWARNER explained a district gets a lot of PL874 money because it has federal lands. SENATOR RIEGER asked if as a district increases its contribution, the deduction of the PL874 decreases which means the state gives more money out of its foundation formula to that district? MS. MARTIN answered that was correct. MS. MARTIN explained to get the level of your local contribution you can take 35% of last year's basic need or you can take the assessed valuation of the property times 4 mills - whichever is less. Local governments can pay more than the minimum. There are some instances where the government would like to give more, but can't, because there is a cap in the formula so that they can meet the disparity test for PL874 equalization. Number 465 MR. SWARNER explained how fluctuation in land valuations affects the calculations and why there is a cap. Number 527 SENATOR RIEGER asked if the ceiling on local effort was just a judgement call? MR. SWARNER answered that it was spelled out in state law. LARAINE DERR said the way a district didn't have to obey the disparity test was if the state didn't take into account the $61 million received for PL874 equalization. TAPE 93-2, SIDE B Number 556 MS. MARTIN explained that the assessed valuation going up or down, impacts the ability of that district to pay. Number 544 SENATOR ELLIS said that some school districts are asking for a hold harmless provision now that their assessed values are going up. He asked how much money they were talking about if they were to implement such a provision. MS. MARTIN said she didn't know what the number would be. She agreed it was very difficult for a local government to react quickly to the fluctuation in land values. SENATOR ELLIS commented that it is usually easy to recover when property values go up, but they can go down dramatically which causes problems. Number 499 SENATOR ELLIS said he knew the school districts would ask for a hold harmless provision while the legislature rewrites the foundation formula. He wanted to see a good analysis of that trend so he could see if it was justified. SENATOR LEMAN said the October 15 projection date falls on a cycle for the military when people are changing residences. He asked if there was any way to make an adjustment for people who have a lot of military population. MS. MARTIN answered generally there is a supplemental if the enrollment projections aren't adequate. She said that October 15 is an awkward date for many schools, because they count their kids for next year's funding purposes in the four weeks that end the last week in October of the current year. Number 462 SENATOR KELLY asked if they could use data from permanent fund dividend applications to figure out enrollment. MS. MARTIN answered that method might work in some districts. She said they talk to state agencies which deal with demographics and the University, the Army, and the Air Force to make their projections. There are a number of different ways to figure enrollment. Number 449 SENATOR SHARP asked if there was any way to encourage more local contributions. MS. MARTIN said a community might opt to do that because they would want some local choices in their schools. SENATOR RIEGER asked about the single/dual site issue. MS. MARTIN explained that when you deal with the very small single sites, formula does not provide enough units. She said you have to meet your rules for special education, bilingual education, and a vocational plan. SENATOR RIEGER said he found the statutory definition of funding community which said the Department does it by regulation and asked if there was a consensus. MR. SWARNER said it hadn't been in dispute, but probably would be with new legislation from the governor's office. He also noted that the needs within the schools have changed over the years. MS. MARTIN noted there was controversy over how many students were needed in order for a school to be operated and if they were on a road system, how far apart they had to be. SENATOR LITTLE said she wanted an opportunity to learn about the proposed price index. Number 400 SENATOR PEARCE thanked everyone for their participation and adjourned the meeting at 10:20 a.m.