Legislature(2009 - 2010)CAPITOL 106

02/19/2010 08:00 AM House EDUCATION

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08:04:42 AM Start
08:05:06 AM HB311
08:09:48 AM Overview: Alaska Virtual Academy
09:10:11 AM HB350
10:00:27 AM HB297
10:04:54 AM HB206
10:05:54 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Overview: Alaska Virtual Academy based in TELECONFERENCED
Wrangell and the products and services
provided to the school, by K12 Company
<Bill Hearing Canceled>
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
Heard & Held
<Bill Hearing Rescheduled from 02/17/10>
Moved Out of Committee
Heard & Held
        HB 350-PUBLIC SCHOOL FUNDING: LOCAL CONTRIBUTION                                                                    
9:10:11 AM                                                                                                                    
CHAIR SEATON announced  that the next order of  business would be                                                               
HOUSE BILL  NO. 350, "An  Act relating to the  local contribution                                                               
to public school funding; and providing for an effective date."                                                                 
9:11:08 AM                                                                                                                    
KATY  KOESTER, Staff,  Representative Paul  Seaton, Alaska  State                                                               
Legislature,  presented HB  350, explaining  that it  will change                                                               
the  required local  effort,  which is  the  minimal amount  that                                                               
municipalities  are mandated,  through statute,  to allocate  for                                                               
education, and  is determined by  assessing the taxable  real and                                                               
personal  property of  a district.   Directing  attention to  the                                                               
committee  packet,  and  the  charts   labeled  "History  of  How                                                               
Required  Local  Effort Works"  and  "How  Required Local  Effort                                                               
Works Under HB  350," Figures 1 and 2  respectively, she provided                                                               
an illustrated, theoretical example  of local effort, using Craig                                                               
and the Kenai Peninsula Borough (KPB).                                                                                          
9:12:30 AM                                                                                                                    
CHAIR SEATON asked if the examples use actual mill rates.                                                                       
MS. KOESTER explained  that the idea is to  illustrate how actual                                                               
mill  rates  would be  effected  by  HB  350.   She  offered  the                                                               
disclaimer that  the examples are for  illustrative purposes only                                                               
and do  not reflect actual  shifts in property values  or current                                                               
mill rates.                                                                                                                     
9:14:13 AM                                                                                                                    
REPRESENTATIVE MUNOZ noted 4 mills  as the minimum required local                                                               
contribution, and asked about the allowed maximum contribution.                                                                 
MS. KOESTER  said that would  constitute funding to the  cap, and                                                               
deferred  to the  Department of  Education and  Early Development                                                               
9:15:24 AM                                                                                                                    
MS.  KOESTER addressed  Figure 1,  comparing  the computation  of                                                               
local effort based on two homes,  one located in Craig and one in                                                               
KPB, equally valued at $100,000.   Local effort was determined in                                                               
1990,  by applying  the  4 mill  rate to  the  two year  previous                                                               
assessment.   In this case, $100,000  for both homes held  a 1988                                                               
value of $100,000, resulting in  a local contribution requirement                                                               
of $400 in both communities.   For 2001, the example indicates no                                                               
change in  Craig, but since  1988 the KPB did  experienced growth                                                               
and the home  value increased to $200,000.  Thus,  applying the 4                                                               
mill  rate,  based   on  the  prior  two   year  assessment,  the                                                               
contribution level  remains at  $400 in  Craig, but  increases to                                                               
$800  in  KPB.    The legislature  realized  the  disparity  that                                                               
communities were experiencing, based  on growth versus non-growth                                                               
areas, and passed SB 174, in  2001, to freeze the assessed values                                                               
at the  1999 level, for  local effort computation purposes.   The                                                               
new formula  uses the 1999 assessment  as a base, plus  any value                                                               
increase over two  years, at the 50 percent level.   Execution of                                                               
the new  formula finds the  KPB example  home, valued in  1999 at                                                               
$200,000.  By using a two  year assessment look-back factor of 50                                                               
percent, $50,000,  and applying  the 4  mill rate,  the resulting                                                               
local  effort contribution  is  $1,000; equating  to  a 3.3  mill                                                               
rate.  Without the SB  174 formula, the local effort contribution                                                               
would  have  been  $1,200.     The  actual  mill  rate  in  areas                                                               
experiencing growth  since 1999 is steadily  decreasing, and will                                                               
continue  on  this  path,  as  property  values  increase.    The                                                               
committee  is attempting  to determine  if  this is  fair to  all                                                               
areas of the state.                                                                                                             
9:19:30 AM                                                                                                                    
MS. KOESTER turned to Figure 2,  and explained how HB 350 changes                                                               
the computation  of local  effort to bring  equality to  the same                                                               
scenario.   The bill sets a  uniform mill rate of  2.7, applies a                                                               
temporary  tax break  in areas  experiencing growth,  and uses  a                                                               
shorter look-back.   The  new formula  uses the  value difference                                                               
between  the two  year and  one year  look-back assessment.   The                                                               
home values for  2008 are $100,000 in Craig $300,000  in KPB.  In                                                               
2009,  the Craig  home remains  valued at  $100,000, but,  due to                                                               
municipal growth, the  KPB home is $320.00.  With  the passage of                                                               
HB 350,  the 2010 local  effort for  the Craig property,  with no                                                               
growth  to track,  would  be  valued at  2.7  mills, or  $270.00.                                                               
However, the KPB  home shows an increase between the  two and one                                                               
year look-back  assessment values.   Calculation begins  with the                                                               
$300,000 base, add the $10,000  for the 50 percent value increase                                                               
differential, and applying the 2.7  mill rate, for a local effort                                                               
contribution result of  $837.00.  The HB 350  formula provides an                                                               
equal  contribution  for  all  municipalities  with  a  built  in                                                               
temporary break for areas experiencing grown.                                                                                   
9:22:02 AM                                                                                                                    
REPRESENTATIVE MUNOZ asked what the  loss of revenue would be, if                                                               
the bill were implemented.                                                                                                      
MS. KOESTER directed  attention to the fiscal note,  and said the                                                               
state picks-up the difference in  the mill rates.  The department                                                               
has  supplied  a  chart  in  the  fiscal  note  to  indicate  the                                                               
increased state aid of $19 million.                                                                                             
REPRESENTATIVE  MUNOZ asked  what  affect  lowering the  required                                                               
local  effort  would  have  on  the  ability  of  communities  to                                                               
contribute  beyond  the  minimal  amount;  would  the  percentage                                                               
MS. KOESTER deferred to EED.                                                                                                    
9:23:50 AM                                                                                                                    
REPRESENTATIVE GARDNER asked how the 2.7 mill rate was derived.                                                                 
MS. KOESTER  said 2.7 is  the lowest  mill rate being  applied in                                                               
any  district,  and  implementing it  prevents  any  municipality                                                               
suffering the hardship of having a sudden rate increase.                                                                        
9:24:46 AM                                                                                                                    
CHAIR SEATON  confirmed that the  Mat-Su, St. Maries,  and Hoonah                                                               
districts are taxed  at the 2.7 rate.  He  stated his belief that                                                               
the bill incorporates a means for  the committee to bring a level                                                               
of  fairness to  the  situation.   The  50  percent look-back  is                                                               
included,  because  with  growth   comes  the  need  for  further                                                               
infrastructure,   and  communities   need  funds   to  compensate                                                               
expansion.   He opined  that problems stem  from the  static 1999                                                               
baseline, causing some  communities to always have  a higher mill                                                               
rate  than  others,  and  speculated  that  a  law  suit  may  be                                                               
forthcoming if some action is not taken by the legislature.                                                                     
9:27:39 AM                                                                                                                    
REPRESENTATIVE   KELLER   reflected   on   the   communities   he                                                               
represents,  the typical  demographic  profile, and  the lack  of                                                               
control  that  residents  have  over  rapidly  changing  property                                                               
values.  He asked if there is precedent for a unified mill rate.                                                                
REPRESENTATIVE BUCH reported varying  mill rates exist within the                                                               
municipality  of  Anchorage,  depending on  the  availability  of                                                               
services, such as fire and rescue.                                                                                              
CHAIR SEATON pointed  out that the bill responds  to the question                                                               
of  whether the  state  is  requiring the  local  effort of  some                                                               
communities to be a higher  percentage of the assessed evaluation                                                               
than others.   He opined that, there are real  equity problems as                                                               
assessments rise in some areas, and not others.                                                                                 
9:30:44 AM                                                                                                                    
REPRESENTATIVE  P. WILSON  noted  that as  people  migrate to  an                                                               
area, infrastructure  needs are  increased.  She  said it  is one                                                               
thing to  have taxes reflect  the services provided,  however the                                                               
schools are required  to provide the same  education to everyone.                                                               
According to  the current  formula, it is  more difficult  on the                                                               
areas  that aren't  growing  than it  is on  the  areas that  are                                                               
experiencing growth.  She opined,  that the [SB 174] formula does                                                               
not appear to be fair.                                                                                                          
9:32:53 AM                                                                                                                    
CHAIR  SEATON clarified  that the  assessment has  nothing to  do                                                               
with the  direct tax  a homeowner on  their house.   It is  a tax                                                               
contribution provided  by the borough  as a whole,  calculated on                                                               
the property assessments  of the area.  The vehicle  by which the                                                               
borough derives the  funds is variable, and may  include taxes on                                                               
sales, property, or other means.                                                                                                
9:34:13 AM                                                                                                                    
REPRESENTATIVE KELLER said the bill  ultimately reduces the local                                                               
contribution burden, and increases the  load on the state general                                                               
fund.   A property  tax in  general is  an unfortunate  method of                                                               
paying  for schools,  he opined,  as  it tends  to penalize,  and                                                               
inhibit, owners from property improvement.                                                                                      
CHAIR SEATON  explained that by  continuing to use the  base year                                                               
of 1999,  more of  a load will  be placed on  the state,  and the                                                               
general fund contribution will  become more disproportionate over                                                               
time,  effectively  reducing  the  actual value  of  the  4  mill                                                               
REPRESENTATIVE KELLER requested a  long range projection graph to                                                               
better  understand   the  presumptions,   of  how  HB   350  will                                                               
ultimately effect local effort and state contributions.                                                                         
9:38:03 AM                                                                                                                    
REPRESENTATIVE EDGMON  indicated his interest to  receive further                                                               
information  regarding  all  "the  moving pieces  that  fit  into                                                               
required local contribution, above and  beyond just the mill rate                                                               
9:41:47 AM                                                                                                                    
EDDY  JEANS, Director,  School  Finance  and Facilities  Section,                                                               
Department  of Education  and Early  Development (EED),  directed                                                               
attention to the committee packet,  and referred to the EED chart                                                               
titled  Mill  Equivalent  Change.   He  pointed  out  the  column                                                               
labeled [Projected] FY  11, which lists the  district mill rates,                                                               
and said 2.7  is the lowest mill equivalent on  the full and true                                                               
value  of  a  community,  for  that  year.    No  district  would                                                               
experience an increased  contribution under HB 350.   He referred                                                               
to  Representative   Munoz's  previous  question   regarding  the                                                               
meaning  of local  required effort,  and said  it relates  to the                                                               
basic need aspect  of the foundation formula.  Basic  need is the                                                               
entitlement  allowed under  the  formula, and  once calculated  a                                                               
determination is made  for the derivation of  the funds utilizing                                                               
three sources  of revenue.   The  required local  contribution is                                                               
combined with  federal impact aid, and  any remaining entitlement                                                               
is made up from state funds.  He said:                                                                                          
     This  particular  piece  of  legislation  impacts  that                                                                    
     piece within basic need:   who pays.  It doesn't impact                                                                    
     the  amount  of  additional  local  contribution  above                                                                    
     basic need.   The additional local  contribution is the                                                                    
     equivalent of 23  percent of basic need  in the current                                                                    
     year. ...  The required local  effort is based  on mill                                                                    
     equivalents,  applied to  the full  and true  value, as                                                                    
     set  by  the  state  assessor  for  all  municipalities                                                                    
     around the state.                                                                                                          
MR. JEANS  explained that full  and true value is  established by                                                               
assessing  all   real  and  personal  taxable   properties  in  a                                                               
community,  including  boats,   cars,  stores,  and  construction                                                               
companies.   Certain  communities  may allow  exemptions, at  the                                                               
local level.   For instance, Juneau does not  tax boats, however,                                                               
the value  of the boats in  Juneau would be included  in the full                                                               
value established by  the state assessor, as part  of the uniform                                                               
application for  all communities.   Referring  again to  the Mill                                                               
Equivalent Change chart,  he indicated that in the  first year of                                                               
the implementation  of SB 174  nearly every  district contributed                                                               
either 4  or 3.9 mills.   He recalled that  the intent of  SB 174                                                               
was  to provide  municipalities,  which  were experiencing  quick                                                               
economic  growth, a  tax break;  the compounding  factor was  not                                                               
intended.  Directing attention to  the chart titled "State Cost,"                                                               
he pointed out that in FY  02, the basic need contribution by the                                                               
state was $3.6 million; a  figure which might otherwise have come                                                               
from municipalities.   Since  the establishment  of a  base year,                                                               
and the  inclusion of  only 50  percent of  the annual  growth in                                                               
communities from  1999 forward,  the effects of  SB 174  on state                                                               
contributions to  basic need,  become apparent,  and he  read the                                                               
chart yearly  totals, in millions:   FY 03 -  $9; FY 04  - $12.5;                                                               
and FY 05 - 18.8.  He said:                                                                                                     
     When I realized what was  happening ..., I brought this                                                                    
     to the Legislature's attention,  because I didn't think                                                                    
     that was  the intent  of the legislation.   But  as you                                                                    
     can see the numbers start  building pretty quick, and I                                                                    
     would say  there was  a sense  of reluctance  to remove                                                                    
     this state support out of the foundation program.                                                                          
MR. JEANS, directing  attention to HB 350, said  the bill retains                                                               
the  concept  of  providing  municipalities  a  one  year  break.                                                               
Turning to  the fiscal note, page  2, he explained the  effect of                                                               
dropping all  areas to a  2.7 mill rate, a  cost to the  state of                                                               
$18.7  million.   The 50  percent one  year look-back  would also                                                               
cost  the state  $2.5  million.   Subsequent  years will  realize                                                               
similar numbers, but  the break is rolled forward  each year into                                                               
the new base.                                                                                                                   
9:49:49 AM                                                                                                                    
CHAIR SEATON clarified:                                                                                                         
     You count  50 percent  of that  increase for  one year,                                                                    
     but  then  the  next  year you  pickup  that  other  50                                                                    
     percent, so  then you're back  to looking at  that year                                                                    
     as being the base year of 100 percent of the assessed                                                                      
     evaluation, times the 2.7 [mill rate].                                                                                     
MR. JEANS concurred.                                                                                                            
9:50:26 AM                                                                                                                    
REPRESENTATIVE KELLER  asked what happens  if there is  a decline                                                               
in values.                                                                                                                      
MR. JEANS said the full 2.7  mills would be required.  He pointed                                                               
out that,  as indicated on  the chart, some communities  have not                                                               
seen growth since 2002, but are still paying 4 mills.                                                                           
9:51:30 AM                                                                                                                    
CHAIR  SEATON directed  attention back  to the  fiscal note,  and                                                               
said there  would be an initial  $21 million dollar base  hit, of                                                               
which $18  million will occur,  because the 50 percent  factor is                                                               
being counted  for the previous  year only, and does  not include                                                               
all the years back to 1999.                                                                                                     
MR. JEANS agreed,  and added that the look-back to  1999 is being                                                               
deleted, and the calibration is based on 2.7 mills.                                                                             
9:52:17 AM                                                                                                                    
REPRESENTATIVE P.  WILSON inquired  whether the fiscal  note, for                                                               
HB 350, includes the previously compounded figures.                                                                             
MR. JEANS  answered that HB  350, and the fiscal  note, eliminate                                                               
the compounding  factor, and  1999 base  year.   Communities will                                                               
realize the benefit of the 50 percent reduction for one year.                                                                   
9:53:03 AM                                                                                                                    
REPRESENTATIVE  P.  WILSON  acknowledged   that  the  state  will                                                               
continue to  pay more, and more,  under SB 174, and  asked if the                                                               
chart shows  the savings  the state will  realize by  enacting HB
MR. JEANS said  it is not shown  in the fiscal note.   He pointed                                                               
out how  the multi-year analysis  assumptions from 3-4  years ago                                                               
did not prove to be accurate.   A new model could be built, which                                                               
may not prove  to predict the economy with  any more assuredness.                                                               
The charts provided  in the packet, and the  fiscal note, provide                                                               
a mechanism  to calculate  the amounts,  and indicate  the fiscal                                                               
responsibilities for each portion of the state funding formula.                                                                 
9:55:11 AM                                                                                                                    
REPRESENTATIVE  P.  WILSON  cautioned   that  when  the  bill  is                                                               
referred to  the finance committee there  may need to be  a means                                                               
to further illustrate the point.                                                                                                
MR. JEANS replied that the best  example is the state cost sheet,                                                               
which indicates  that from FY  02-11, the state will  have picked                                                               
up $77  million in local contribution  for municipalities because                                                               
of SB 174.  Comparing FY  10-11, the increase is only $4 million,                                                               
but from  FY 08-09,  the increase  is $16  million.   He stressed                                                               
that it  is not  possible to  predict as accurately  as it  is to                                                               
illustrate what has occurred.                                                                                                   
9:57:02 AM                                                                                                                    
REPRESENTATIVE MUNOZ noted that  many communities fund beyond the                                                               
minimum contribution, to the cap,  and asked about the effects of                                                               
HB 350 on these areas.                                                                                                          
MR. JEANS  pointed out  that the  districts benefiting,  from the                                                               
2.7  mill, and  HB 350  enactment,  are reflected  in the  fiscal                                                               
note; listed  by community.   The education basic need  burden is                                                               
being  shifted  from  the  local effort  to  the  state,  because                                                               
"somebody has  to pay."   However, the  required local  effort is                                                               
outside  of the  basic  funding formula,  a  number that  doesn't                                                               
change.   Thus, municipalities will  still be able  to contribute                                                               
additional local revenue, above the basic foundation formula.                                                                   
CHAIR   SEATON  interjected   that  federal   regulations  impose                                                               
limitations  which restrict  local contribution,  as a  means for                                                               
avoiding  "rich districts."   Additionally,  he pointed  out that                                                               
situations  in  districts are  subject  to  change, and  economic                                                               
growth, or  student growth, remains subjective,  and he requested                                                               
that  the   department  submit  further   information,  regarding                                                               
changing school needs, to the committee.                                                                                        
9:59:08 AM                                                                                                                    
CHAIR SEATON announced that HB 350 would be held over.                                                                          

Document Name Date/Time Subjects
HB 206 Version P Amendment.pdf HEDC 2/19/2010 8:00:00 AM
HEDC 3/1/2010 8:00:00 AM
HEDC 3/8/2010 8:00:00 AM
HEDC 3/17/2010 8:00:00 AM
HB 206
K12 Website.mht HEDC 2/19/2010 8:00:00 AM
FY02-11LocalEffortAssessed&educationWithMills-2Pager_10-22-09.xlsx HEDC 2/19/2010 8:00:00 AM
HEDC 3/3/2010 8:00:00 AM
HEDC 3/10/2010 8:00:00 AM
HEDC 3/12/2010 8:00:00 AM
HEDC 3/15/2010 8:00:00 AM
HB 350
HB 206 version P Sponsor Statement February 4, 2010.docx HEDC 2/5/2010 8:00:00 AM
HEDC 2/10/2010 8:00:00 AM
HEDC 2/12/2010 8:00:00 AM
HEDC 2/19/2010 8:00:00 AM
HEDC 3/1/2010 8:00:00 AM
HEDC 3/8/2010 8:00:00 AM
HEDC 3/17/2010 8:00:00 AM
HB 206
HB 206 Version P February 4, 2010.pdf HEDC 2/5/2010 8:00:00 AM
HEDC 2/10/2010 8:00:00 AM
HEDC 2/12/2010 8:00:00 AM
HEDC 2/19/2010 8:00:00 AM
HEDC 3/1/2010 8:00:00 AM
HEDC 3/8/2010 8:00:00 AM
HEDC 3/17/2010 8:00:00 AM
HB 206
Alaska Virtual Academy at Wrangell.ppt HEDC 2/19/2010 8:00:00 AM
Anchorage Enrollment Graphs1 (2).pdf HEDC 2/19/2010 8:00:00 AM
Kenai_LKSD_KTN_Sitka Enrollment Graph (2).pdf HEDC 2/19/2010 8:00:00 AM
HS Catalog_09-10.pdf HEDC 2/19/2010 8:00:00 AM
KPBSD Student Count Numbers.xlsx HEDC 2/19/2010 8:00:00 AM
Sponsor Statement HB 350.doc HEDC 2/19/2010 8:00:00 AM
HB350-EED-ESS-2-18-10.pdf HEDC 2/19/2010 8:00:00 AM
HEDC 3/3/2010 8:00:00 AM
HEDC 3/10/2010 8:00:00 AM
HEDC 3/15/2010 8:00:00 AM
HB 350
Enrollment Numbers_Single Page1 (2).pdf HEDC 2/19/2010 8:00:00 AM
School District student count analysis.pdf HEDC 2/19/2010 8:00:00 AM
DG_Nen_Wra_Cord_Skag Enrollment Graph1.pdf HEDC 2/19/2010 8:00:00 AM