Committee on Education

Public Hearing, LB 542

February 27, 1995

Page 50

LB 542

SENATOR BEUTLER: Senator Bohlke and members of the Education Committee, LB 542 deals with a problem back in 1991 with impact aid and with how it was handled with respect to the state aid formula. If you look at the bill, you can see it's a real brain teaser. I would like to take you through just a skeletal outline of what it's all about and then I will be followed by Mr. Jim Gessford who is the attorney working on this matter and, hopefully, he can take that skeletal outline and flush it out in more detail for you with respect to those details in which you take an interest. But, essentially, by and large, the year that we are talking about with respect to the particular problem involved and which LB 542 addresses is the fiscal year 1991 for school districts; and in that year the commissioner, the Nebraska Commissioner of Education made the decision to include impact aid on the resources' side of the state aid formula. So that money which was coming to certain school districts from the federal government to compensate, as I understand it, for the heavy load that they may have with

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respect to soldiers or federal workers of one type or another, that type of aid was counted in 1991. It was then later determined by the federal people who administer impact aid that that was an inappropriate accounting of state aid. So, at that point in time, a dispute developed and there is now currently a case before, as I understand it, the Federal Department of Education, appealing that ruling by the Federal Department of Education. Since that impact aid was figured in to the state aid formula, and that money was actually paid out in 1991, all but twelve school districts in the state, assuming the federal sources are right, all but twelve school districts got more money than would otherwise have been the case. Okay. So now this litigation is pending and they are attempting to construct a settlement of the matter. And the settlement, because it involves both the federal government and the state government is necessarily complex; and, in fact, involves necessary changes in both the state law and the federal law. And what they are proposing to do is this, first of all, with respect to state law changes, is to propose that the Department of Education to reimburse districts who lost money in 1991. The second part then is the change in the federal law which would do two things. First of all, it would validate the distribution that was made in 1991 with respect to federal law; and, secondly, in doing that, it would be saying essentially, that that money which was counted in the aid formula by virtue of having been counted, would not have to be given back to the federal government. In other words, again in a different sense, validating what occurred in 1991. So, what they're trying to do is make those changes, both in state law and in federal law, to validate what occurred in 1991. Where did the monies come from then that would be necessary in order to compensate those districts who lost money in 1991? That money would come from either an appropriation in this current year, or, if there is no appropriation in the bill, it would come off the top of the 1995-1996 state aid pile; and the amount of money that is envisioned here is about $900,000. The reason that it was thought good to take care of it off the 1995-96 state aid pool was because that pool was anticipated to be about $3 million larger by virtue of the end of the hold harmless; and, therefore, it was thought that that could be accommodated reasonably. So that's, basically, what's happening and I'm sure Mr. Gessford will go over that with you because I'm not sure I comprehend all the details and it's very hard to pick them up, I know. But I think the essential point is that we're trying to make right a mistake that happened in 1991, in a way that will be fair to everybody and in a way that will cause the least turmoil to

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the system. With that, Madam Chairperson, I would stop.

SENATOR BOHLKE: Are there questions from the committee? I see none, at this point. (laughter) Qualify.

SENATOR BEUTLER: Well, I think this is one of those cases where it's going to take you a little while to digest this then you'll have several questions.

SENATOR BOHLKE: Yes, I heard about the money from the hold harmless which I'll ask a little later on because I think we've got other bills looking at using some of that money also.

SENATOR BEUTLER: I would like to reserve the right to close. However, I've been informed, and to my knowledge, everybody that's involved in this situation is in agreement on this settlement and if we can reach some sort of solution on the state level with the state law, our representatives in Washington are ready to move with the federal changes and they do not anticipate problems with the federal changes as other states have found- and then themselves in similar circumstances, including Senator Dole's state.

SENATOR BOHLKE: Those wishing to testify in support of the bill. Mr. Gessford.

JAMES GESSFORD: Thank you, Senator Bohlke, Members of the Committee. My name is James B. Gessford. I'm an attorney in Lincoln, Nebraska. I'm appearing here today, technically on behalf of Lincoln Public Schools and Grand Island Public Schools who I represented in these proceedings. As Senator Beutler has indicated, the matter that we're going to discuss today and LB 542 is, quite frankly, a fairly complicated fiscal matter. It's one that I've working on, as an attorney, for approximately the last two years now and I guess for your benefit, I don't know what it says about my profession; but when they got a matter that's so complicated that almost no one can explain it, who do they send up to try it and explain it to you, but another lawyer. So you'll have to bear with me. What I'll try to do is make this as easy as I can. The first thing that I'd like to point out is, hopefully, the page I have circulated to you, a proposed amendment to the bill. We would be offering that amendment, in essence, and be supporting that amendment. I would also like to mention for, the record, that Bellevue Public Schools who is an integral part of this entire process, in the litigation involved, was here earlier. I understand they had another commitment but I've not seen the record,

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but I understand they did sign the record appearing in support of this particular bill and the amendment that we're offering. What I'd like to do, you should have received two documents. one is the proposed amendment that we're proposing and another document is a little thicker and I think what I need to, do to really help you understand what's going on here, is somewhat go through the other document that you're receiving; and you can begin to see some of the parties that were involved and some of the process. If I might, prior to getting into that, state very simply, when the Legislature, and, quite frankly, I get confused whether it was 1990 or '91, but in any event, and the feds are using different years than we are so that helps complicate matters. But when the Nebraska Legislature passed LB 1050 which was... 1059, excuse me, which was the now state aid distribution formula, that formula had one little clause in it; and that little clause said that when the State Department of Education does this complicated formula and then, ultimately, decide how much in state aid is each individual district gonna actually get, that little clause said that the State Department of Education will take into consideration Impact Aid that any school districts receive in the State of Nebraska; but then, it had these key little words that said, to the extent allowed by federal law. What happened, the very first year, right after LB 1059 was passed, is the Nebraska Department of Education did take Impact Aid that districts in Nebraska get into consideration when they calculated the individual state aid that each school district would get and I think to get right back 'Into the materials, the first page of the materials I've handed out is simply, memorandum of understanding and an agreement to allow us to resolve this entire process. What you need to understand is that this problem that we've been dealing with is, in essence, a five-year problem; and what we're really trying to do is put this problem behind us and get on with the business of educating students. The parties involved in the appeal that's pending in front of the U.S. Department of Education are those parties that are signed on the front page of this memorandum of understanding. They include Lincoln and Grand Island who I represent, they also include Omaha Public Schools, Bellevue Public Schools, and Papillion-La Vista; and this is the settlement arrangement that we've come up with. The second page of the materials I've handed out to you, I think is important to show that we have attempted to involved the Nebraska Department of Education in this whole process of drafting this settlement agreement because what we did not want to do is create a big administrative nightmare or a problem for them in distributing state aid monies as we

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tried to solve this situation; and while they are neutral in this matter, they have reviewed the proposal and they Bay it's workable by their computers. They can very easily implement the suggestions that we're offering and I believe we do have someone from the Department of Ed here who, if you have detailed technical questions, would be happy to provide the answers to those to you. The real crux, and the main document that I think it's important that you understand, would be the next page which is a computer printout page and I think I need to spend just a bit of time going over that computer printout page with you because I think this is the way that I've found is the easiest way to try and understand and get a handle on this problem. This computer printout is a document that was generated by the Nebraska Department of Education and their computer. What it shows is the results of this situation and if you'd look at page one of that, for example. You can see a number of columns and they have some rankings, district numbers, and they have district names, the class of the district. You'll see, for example, the first district is the Bellevue Public Schools and then it has a column called actual aid and if you look at that, and then the next column is the aid if Impact Aid had not been taken into consideration and then it has a column that says, a change in aid. And what that really tells you is that in the 199091 year, for Bellevue, they, in essence, received $11 million in state aid. The state aid that they would have received, if the Department of Ed had not taken into consideration the impact aid that they received, would be $14 million; and so you'll see the change in aid of $2.894 million. Now what that says, is that Bays that and, unfortunately, the change in aid column is a bit misleading because, quite frankly, the first 12 districts actually should be the minus and the then everybody else in this computer printout sheet should be a plus because in Bellevue's case, they actually received $2.894 million less in state aid than they would have received if impact aid had not been taken into consideration. And that follows through, you can see, with the Papillion, Malcolm, all the way through, actually, Clay Center was the last district that actually lost state aid because impact aid was taken into consideration. The remainder of the districts on the printout sheet show a negative and actually, what that means, is that they got that much more in state aid for that particular year than they should have received if no impact aid had been taken into consideration; and as you can see that the amount they received more starts out very small and then if you look towards the very end of the computer printout sheet, on page 10, for example, which is really the last page, you can

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see that the Omaha Public Schools received $675,000 more in state aid than they would have received if impact aid, on a state wide basis, had not been taken into consideration when the state aid calculation was done. So, in essence, for this year, Omaha has $675,000 at stake. Lincoln Public Schools, for example, has $507,000 at stake, just as kind of an example, you can see here North Platte Public Schools has $54,000, Hastings Public Schools has about $39,000 that they received more in state aid than at least the U.S. Department of Education currently says they should have received. Does anybody have questions on what this computer printout sheet shows?

SENATOR BOHLKE: Questions from the committee?

PAUL GESSFORD: What I'd like to do then is, if we can move back to page one of the computer printout sheet. (Exhibit I, Exhibit J) What this shows is that there's a total of twelve school districts that received less state aid than they think they should have received; and, at least according to the current U.S. Department of Education ruling, that ruling would say that they should have received that excess state aid. If you total that column up, that column all the way down to District 12 is a total of $3,806,877.84 so it's about $4 million dollars, just short of $4 million dollars. Now here's where the kicker comes in and this complicates the matter. If you total up all the amounts there, except Bellevue, Bellevue has $2.8 million at stake. And if you total the rest of them, from Papillion on down, that's a total of $912,050.05 so it's just short of a million dollars. Now, to try and simplify this thing as much as I can, what this bill tries to do is to settle what, in essence, is a $4 million case for $1 million. Because of Bellevue's unique situation, if we ultimately lose this litigation and the Federal Department of Education says Bellevue gets another $2.8 million, because of the type of impact aid that they receive which is called 3D2B Funds and I'm not and don't profess to be a federal impact aid expert, I've learned just enough about it to be dangerous in this matter; but, as I understand it, the only school district in the State of Nebraska that receives 3D2B impact aid funds from the federal government is Bellevue Public Schools; and as I understand it, the reason they receive that, at least in a general sense, is because everybody else in the State of Nebraska that gets impact aid from the federal government, they get it primarily because the federal government owns some land in their school district and that land is exempt from taxation so the purpose of the impact aid is to attempt to make up for that lack of valuation that

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they don't have now because that land is owned the federal government and it's exempt. In Bellevue Public Schools' case, they get a double whammy, at least according to the impact aid situation. Not only do they not have a lot of ... they have a lot of land that's owned by federal government so they lose the valuation but they, unlike most other districts in the state, also have kids living on that land because it's the base and there's a lot of air force people that live there and they have a lot of kids. So in addition to losing the valuation, they have to educate those students so they receive, what the federal government has defined as this special 3D2B Fund. Now the way 3D2B works, as opposed to the rest of the impact aid is, if we lose this case and Bellevue gets $2.8 million more in state aid, what the feds are going to come in then and say is that in 1990, Bellevue you received $3 million too much in 3D2B in federal impact aid. So, in essence, what's gonna' happen, is you're going to supplant federal funds with state funds and what we're gonna' do, if we don't do if we don't do this settlement is, we're going to take $3 million that Bellevue has received, has in their pocket from the federal government, and already spent it, and we're going to send that $3 million back to Washington, D.C., and the state then, is going to pay Bellevue that $3 million. So the gist of this entire settlement is to try and get back the other eleven districts what they think they should have had, but not send $3 million back to Washington, D.C., and that's really the gist of this entire settlement, is the... our Senators at the federal level have indicated they will pursue the federal legislation that we need so that we can be deemed certified for the year '90-91 which would allow Bellevue then not to be having to pay back, because they really are in kind of a neutral position, whether they get it from the state or from the feds, it doesn't matter. It's the same dollars to them, it's just from a different pockets. So, it seems to me, as a state wide goal, our goal ought to be, let's settle this matter out. Let's keep... let's let Bellevue keep the money they got from Washington, D.C., and let's don't not settle this matter with the end result being we're just going to take $3 million of federal money that we've already got and spent and send it back to Washington. And, you know, I don't know if that's clear or understandable, but that's really the easiest way I can explain this bill is, it is as least Senator Kerrey has indicated, he believes this is a win-win solution. All eleven districts on this computer printout sheet, except Bellevue, get what they thought they should have received. We don't send $3 million back to Washington, and then the payment mechanism for that is really everybody

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in the state is contributing to the settlement because they are affected by the settlement anyway and, actually, their contribution to the settlement will be less because it's not a $4 million settlement, it's only a $1 million settlement. So, in essence, if you call this a round numbers, you round it off and you say it's $4 million situation, we're paying $1 million so we got a 23 percent payback; and Lincoln Public Schools has figured that in the sense of the $507,000 that they have at stake, that they might have their state aid reduced, that they would, in essence, be contributing approximately 25 percent of that $507,000 so they're going to be impacted by it because they'll receive less state aid as a result of your distribution in '94-95 or '95-96, I'm sorry, but they think it's only a one for arrangement and so we're not sending money back to Washington and we're really having everybody pay which is what we'd have anyway and that's about the easiest way that I think I can explain this bill and I don't know if it was that understandable to begin with.

SENATOR BOHLKE: Congratulations for now, I understand it, but we may have to have a refresher course at some time. Questions from the committee? Senator Wickersham.

SENATOR WICKERSHAM: Well, the settlement agreement is fairly specific, it's supposed to have a couple of exhibits attached to it and, has to have Congress pass an act by October 1, 1995, that may be harder than getting the Nebraska Legislature to pass something by May 1, but I'm not sure. How... I'm assuming this whole thing doesn't fall apart, A and B aren't attached, obviously, we have some flexibility, but October 1 is a deadline in the bill, why does that matter so much. Couldn't we just say that if they passed something by the end of the year, the federal?

JAMES GESSFORD: The ... the... I guess I'd have to answer the question this way. First of all, I am not a lobbyist, don't purport to be, I'm not sure how Congress works. I have been assured ... that date wasn't picked by me, it was a date, basically, picked by the Senators at the federal level and. Bellevue Public Schools. They feel some, which I would agree, that the October I deadline is controlled somewhat by, we're not sure we can stall the administrative law judge in the pending federal appeal off much past October 1, number one. Number two, supposedly, that's the time of the year when they think they can get this done by; and I don't know if that answers your question but the October 1 date was very specifically negotiated by the parties involved. That was not my suggestion. It primarily was Bellevue and

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Papillion's.

SENATOR WICKERSHAM: okay. I was just curious, how much flexibility members of the Legislature might have when they're confronted with another arrangement, where the parties have all agreed what we should do and they're just asking us to do it. But, because I don't understand why the October 1 date is in there. Do you know what this amendment does, AM0520, did you have any hand in that?

JAMES GESSFORD: Well, first of all, the section 1 of the amendment, no, I did not. I ... that's Bellevue's, it's my understanding that they feel that clarifies the definition under Section 79-201 for mandatory attendance.

SENATOR WICKERSHAM: Okay.

JAMES GESSFORD: That aspect of it, I am really unfamiliar with but the rest of the amendment really is some further concerns and clarifications, really.

SENATOR WICKERSHAM: Since it was prepared by Bellevue, your clients don't have any objection?

JAMES GESSFORD: No, we've reviewed it and it's certainly fine with us.

SENATOR WICKERSHAM: Okay.

JAMES GESSFORD: You see, I've been informed that apparently the October I date coincides with the federal fiscal year which ends September 31(sic). And I assume that the gentleman who handed me that note would be happy to answer any questions you might have but.

SENATOR BOHLKE: Jim.

JAMES GESSFORD: Yes.

SENATOR BOHLKE: Just when after I said I thought I understood it, I have a question.

JAMES GESSFORD: Okay.

SENATOR BOHLKE: Why would it be that Santee and Winnebago would have the same situation as Bellevue, what you call the double whammy, with not being able to account for the land and having the students...

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JAMES GESSFORD: Right.

SENATOR BOHLKE: When we were visiting there, they said something, that they are figured differently ...

JAMES GESSFORD: Yeah.

SENATOR BOHLKE: ... is that true?

JAMES GESSFORD: Yeah.

SENATOR BOHLKE: That they aren't on the 3D ...

JAMES GESSFORD: They are... actually, they are on the list.

SENATOR BOHLKE: I ... yeah, I was looking at that.

JAMES GESSFORD: If you look, for example, just as an example, you look at the bottom of page one, the third district up is Macy Public Schools.

SENATOR BOHLKE: Right, I was looking at that.

JAMES GESSFORD: And you'll see that, as a result of this, actually, and you know, the Senator's aides were asking...the crunching these complicated formulas and you end up with a result and you say, well, how could that possibly be? Actually, Macy Public Schools received $.43 more in state aid than if federal impact aid hadn't been counted and I think Santee is on here somewhere, too, that they received more so.

SENATOR. BOHLKE: Are we every able to ask anyone the question or maybe someone can answer, is why we figure that differently for the, like Santee and Winnebago? It's at a lesser amount, is it not?

JAMES GESSFORD: Well, yeah, I think that the federal regulations tell you what impact aid, federal impact aid, can be taken into consideration if you're going to legally be able to take it into consideration for state aid calculation purposes, and it is not dollar for dollar. I have, and I've supplied to Senator Beutler a lot thicker memorandum, that's more detailed and has a lot more of the supporting documents. That memorandum contains an exhibit that shows during this year, there were, in fact, a total of 23 school districts or 24 in the State of Nebraska that did receive federal impact aid. Among those districts were Lincoln, Omaha, but yet they received more in state aid

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because the federal impact aid they received was taken in consideration. If you look at that chart, it will show how much they actually received and then how much the Department of Ed was allowed to take into consideration when it considered impact aid and in almost all cases, they're substantially different.

SENATOR BOHLKE: Other questions from the committee? Does Bellevue get any other aid besides, other than from the 3D2B?

JAMES GESSFORD: Yeah, and I believe they receive, and again I don't profess to be a federal impact aid expert, there are various categories of federal impact aid and, actually, I know they get 3D2B funds but what other types of federal impact aid they get, I don't know.

SENATOR BOHLKE: Maybe we'll be able to ask someone else. Senator Bernard-Stevens?

SENATOR BERNARD-STEVENS: Just back on the October 1 date again and I don't think you can answer it but whoever else might be listening, later on, the thought occurred to me in listening to this explanation that what happens in this particular fiscal year of the government, if they do what they traditionally do and that they continuing resolution, in other words, they haven't figured out what the budgets going to be but you will receive X number of dollars we think, and you can plan on this and it might be last year's budget, and then they work it out later and they add to a supplemental budget appropriations in the next fiscal year, in the next year, actually, that will cover, you know, that will cover that and I'm just a little bit still concerned about October I date may hinder you too much but it's just a thought of...

JAMES GESSFORD: And... and, you know, I personally, if I had my druthers from the side I was negotiating from in the settlement, I don't want October 1 in there, I'd like to have it be whenever we could get it done. As I know, as well as you do, a lot of times the best laid plans, I mean, here we have a settlement that, quite frankly, boggled my mine. I need to get state legislation and federal legislation to get a settlement to a lawsuit which is, you know; and I think we're moving along that process. I have a concern about it. I, quite frankly, think as Senator Wickersham indicated that there may be some flexibility here but I think the intent, at least, from the other side, Bellevue and Papillion, was to put us on a rope to see, so

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that this couldn't be drug out forever and ever because we're really concerned on how long we can hold off the judge in allowing us to continue this thing.

SENATOR BOHLKE: Other questions from the committee? I see none. Thank you, James.

JAMES GESSFORD: Thank you very much.

SENATOR BOHLKE: Others wishing to testify in support? Anyone wishing to testify in opposition? Neutral testimony? Senator Beutler to close?

SENATOR BEUTLER: Madame Chairman, I don't think I add anything to what Mr. Gessford said.

SENATOR BOHLKE: Amazing. Senator Wickersham, (inaudible). No other questions? That closes the hearing then on LB 542 and Senator Warner, I'll turn it over to you as I open on LB 625.