Public Hearing, LB 840 (1995)

COMMITTEE ON EDUCATION

March 7, 1995

LB 840

The Committee on Education met at 1:30 p.m. on Tuesday, March 7, 1995, in Room 1517 of the State Capitol, Lincoln, Nebraska, for the purpose of conducting a public hearing on LB 651, LB 664, LB 818, LB 840, LB 845, and LR 44CA. Senators present: Ardyce Bohlke, Chairperson; Janis McKenzie, Vice Chairperson; David Bernard-Stevens; Chris Beutler; Ramon "Ray" Janssen; Elaine Stuhr; Jerome Warner; William "Bob" Wickersham. Senators absent: None.

SENATOR BOHLKE: The rules are posted outside the door and I would like to introduce the committee members to you. To my right is Senator Bob Wickersham from Harrison, Nebraska; next to me is Tammy Barry, who is the committee Legal Counsel; to my left is Senator Jan McKenzie from Harvard, Nebraska; next to her is Senator Elaine Stuhr from Bradshaw; and next to Senator Stuhr is Senator Ray Janssen from Nickerson; and on the end is LaRue Wunderlich who is the Committee Clerk. I am introducing the first bill and so I will turn it over to our Vice Chair, Senator McKenzie.

LB 840

SENATOR BOHLKE: Senator McKenzie, Members of the Education Committee, for the record, my name is Ardyce Bohlke, State Senator from District 33, and at the request of the Governor, I bring forward today, LB 840. You will notice that LB 840 also has Senator Wickersham's name as a cosponsor as well as Senator Withem's name. I think this is an issue that, certainly I know, Senator Wickersham had been looking at for a great deal of time and Senator Withem, one that I heard about from numbers of school districts after becoming chair of the Education Committee and, as all of us were discussing and trying to decide how we best meet the concerns those districts were communicating to us, at the same time Governor Nelson, as he was campaigning, heard from constituents across the state that they, also, had the same concerns; and so, we bring forward to you, LB 840. Those concerns from school districts were, that as they would come together to consolidate, that oftentimes after they had made the emotional argument and, in trying to convince voters to vote for the consolidation plan, they then had to say, and, oh, by the way, you may lose two hundred thousand dollars or three hundred dollars in state aid. That definitely, certainly created barriers oftentimes for -moving forward with the plan; and so what this bill does is to try to bridge that gap, that as schools come together, if indeed,

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they would lose state aid, it takes and freezes, actually, the state aid the first year at a hundred percent that they would have received, the second year it is sixty-six percent and the third year, thirty-three percent. The amount of money used...or the way that we fund this, as you know, hold harmless will be ending after this year and that brings about three point one million dollars to the school aid formula and so this would come from that amount of money and if it was so wildly popular that we were running out of money, it would then be prorated. Very simply, that is an introduction to the bill. We have people who will be testifying, giving further information. I know that, I believe that Trent Nowka from the Governor's office is here to testify next and there will be other people from school districts and I think from the department who will be bringing forward information to you.

SENATOR McKENZIE: Any questions? Senator Janssen.

SENATOR JANSSEN: Senator Bohlke, I believe you and I have talked about this before. Now if this would be possible for a, say a Class I school district that is receiving say, a hundred thousand dollars in state aid and merging ... or coming in with a Class VI district and making that Class VI a Class III school; all right, and that Class VI district was, say, they were getting five hundred thousand dollars in state aid, neither one of those would lose anything the first year. Is that right?

SENATOR BOHLKE: Because of the year in arrears state funding, right.

SENATOR JANSSEN: All right, then the second year... first of all, they would have to see what the state aid would be in that Class III, right?

SENATOR BOHLKE: Right.

SENATOR JANSSEN: Okay, if it fell below the six hundred thousand dollars, say there was only one Class I and it was coming in with that Class VI. They fell below that six hundred thousand dollars, they would stay at that six hundred thousand dollars that first year. Right?

SENATOR BOHLKE: Yes. Yes.

SENATOR JANSSEN: That's what I wanted to hear you say, yes.

SENATOR BOHLKE: Yes.

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SENATOR JANSSEN: Then the next year they would... anything, say if their combined state aid then was four hundred thousand, then they would lose thirty-three percent of that extra two hundred thousand dollars, right? It would go down to six six...

SENATOR BOHLKE: They would get that, that second year they would get sixty-six percent and the third year, they would get thirty-three.

SENATOR JANSSEN: Yes, all right. All right, then the fourth year they would be down at the level, at the four hundred.

SENATOR BOHLKE: The fourth year, then, we would just look at that district as we looked at every other school district in the state as far as figuring their state aid.

SENATOR JANSSEN: Well, but the first year, wouldn't they have to figure that on the formula also? So that they could find the disparity between the two?

SENATOR BOHLKE: The first year that they're reorganized?

SENATOR JANSSEN: Um-hum.

SENATOR BOHLKE: They would be looking at ... the first year that they're... if they reorganized in 19 ...

SENATOR JANSSEN: 96.

SENATOR BOHLKE: ... 96, they would get their first payment, the hundred percent in 1998 school year and then the three years following. It should actually say the year following the state ... the organization, not from that very first year, do you understand?

SENATOR JANSSEN: That's fine. Go ahead. I'll talk about that a little later.

SENATOR McKENZIE: Other questions? Senator Stuhr.

SENATOR STUHR: I just have one question. Did we have a bill similar to this already introduced?

SENATOR BOHLKE: Well, the incentive bill that I offered that rewarded you from moving from one tier to another.

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SENATOR STUHR: Okay, thank you.

SENATOR BOHLKE: And that was also in three payments ...

SENATOR STUHR: Okay.

SENATOR BOHLKE: ...and BO that ... I

SENATOR STUHR: Okay.

SENATOR BOHLKE: ... don't think I introduced this before.

SENATOR STUHR: No, no, no, thank you.

SENATOR McKENZIE: Other questions? I see none.

TRENT NOWKA: Good afternoon , Senator McKenzie, Members of the Education Committee. For the record, my name is Trent Nowka, I'm counsel to Governor Nelson and I'm appearing today on behalf of the Governor in support of LB 840 which we refer to a removal of disincentives for reorganization. First of all, I'd like to express our appreciations to Senator Bohlke, Senator Wickersham, and Senator Withem for introducing the proposal on behalf of the Governor. This is actually a bill which will provide a hold-harmless on state aid to school districts that reorganize on a voluntary basis. State aid would be a hundred percent of aid the districts would have received prior to the base year for the first year they have reorganized; the second year, they would received sixty-six percent of that aid; the third year, they would received thirty-three percent; and the fourth year, they would receive the same amount allowed under the current state aid formula. If in any year, the amount of money reorganized school districts receive under the current state aid formula is more than under the proposal, they have the option to receive the greater of the two amounts. The cost of this hold harmless is capped. it is capped at a rate equal to the amount of money currently appropriated for the hold harmless provisions for school districts in 1059. The amount is approximately two point nine million dollars. If more than two point nine is requested, the money is prorated for distribution to the reorganized district. The philosophy behind this bill is simple. If a district finds that it is cost effective and feasible to voluntarily merge into another district, they should have the opportunity to do so-without being hurt in the state aid they are receiving. This allows, for removal of disincentives for reorganization that 1059 currently has in force. This bill will have an impact on equalization aid

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this year. Although the short-term effects will be counter-equalizing, it is the Governor's belief that in the long term, this will have a positive effect for the school districts involved with the implementation of the provision. We feel that it is not likely that the full amount appropriated will be used. In any event, any amount that is unused will be distributed back to the equalization side of the formula. This bill is the Governor's attempt to allow local districts the ability to make changes in their structure only if they voluntarily agree to do so. The Governor feels very strongly that these decisions should be made at the local level. It is an attempt to allow those types of decisions to be made without the disincentives that the current formula has. I would be happy to answer any questions you may have.

SENATOR McKENZIE: Thank you. Senator Bernard-Stevens.

SENATOR BERNARD-STEVENS: Trent, we had some discussion in the committee and you weren't here so I'll kind of give you a preview of it. We're... a gentleman came before the committee and talked about their school districts that had merged and it had taken them ten years to get it done and one district had a great incentive, you know, just because of their high property values. They had... their buildings was running down and they needed to do something and their levy was incredibly high and so it really behooved them to merge. The other one ... the other district, it would have actually increased, you know, their levy such, and there wasn't as much economic incentive but both districts finally determined, for the best education for their kids, that a merger should take place and they did so. The question was asked, and this is where I'm getting around to the question, the question I asked them was, was the...was somewhere along the line of, even if there was a hold harmless or there was an incentive for... or a benefit for merging, you know, would that have made any difference? And I also then asked the question, if there isn't any incentive, you know, out there; why did they do it? And their answer was, the reason they did it was because they had to do it for the best interest of the education of the kids. So the question is, if we put these types of things out there, districts certainly would take advantage of it but do you really believe that would make a difference in whether a district actually reorganized or not?

TRENT NOWKA: The Governor's position, as Senator Bohlke commented that the Governor's heard from a number of school districts saying that it would make a change ... not from

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the ... make a difference, from the standpoint of not just the sending school district but receiving school districts. There have been examples given to the Governor on both sides where a receiving school district wanted to take a smaller school district, but was afraid of the loss of state aid that they would have because it would add to their valuation base; and when you work through the formula, it acted as a disincentive. On the side, it was often from some of the sending school districts in that they could not find ... or they was some reluctance amongst them from the standpoint of going with a larger school district because they were afraid of what it was going to do to their local property taxes because the school district they were going to go to had a larger tax base and their levy may go up so the idea for introducing this was to see, if, in fact, this would provide the assistance that the Governor has heard from school districts and school board members that it would encourage them to reorganize if they wanted to do so.

SENATOR BERNARD-STEVENS: And I will admit, not having read the bill completely, is there a sunset date on this?

TRENT NOWKA: We talked about it but we did not put one in there.

SENATOR BERNARD-STEVENS: Would you be opposed to saying that if the committee wanted to advance a bill of this nature out, that there be like a five-year window of opportunity for districts that were going to do it. Let's do it but let's don't keep it out there forever? In other words, I don't want those districts...

TRENT NOWKA: Right.

SENATOR BERNARD-STEVENS: ... to say, look we're going... I don't %ant a 775 type of thing where industries may, in fact, want ... may want to invest anyway, you know, but so, but let's go ahead ... yeah, we'll invest but we'll go ahead and take advantage of the tax credit, as well. I don't want school districts to say, yeah, normally, we were going to do it anyway, we finally got it worked out, we're ready to do it, the public is ready to do it, you know, but let's wait until we get this hold harmless bill which is better. Either you do it or you don't.

TRENT NOWKA: Right. I'd hate to commit the administration at this point but from discussions we have had, I do not think we would-oppose it, Senator Bernard-Stevens, from the standpoint that that was the discussion that school

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districts may keep putting it off till the very last minute and we need to have some indication, if, in fact, this type of package does address the concerns that they have with regards to loss of state aid or not so...

SENATOR BERNARD-STEVENS: I won't hold that to you but I would appreciate if you do check back...

TRENT NOWKA: I'll get back to you.

SENATOR BERNARD-STEVENS: ... and if that was acceptable, I would like to know that.

TRENT NOWKA: Yeah.

SENATOR BERNARD-STEVENS: Right. Thank you.

SENATOR McKENZIE: Other questions? Thank you.

TRENT NOWKA: Thank you.

SENATOR McKENZIE: Next proponent, please?

DENNIS POOL: Senator McKenzie, Members of the Education Committee, Dennis Pool, representing the State Board of Education. I'm administrator for School Finance and Organization Services at the Department of Education. The concepts that are present in our current state aid formula regarding disincentives with state aid are real and are felt by school districts. As the Education Committee heard on their hearings this summer, those things are also expressed to members of my department in regards to the disincentive because of the fact that, again, I think they're mentioned, that high valuation districts merging with one that would be a high equalization district tends to offset the state aid funding. The State Board of Education is in favor of legislation that removes disincentives from the reorganization process and provides for a local opportunity for reorganization. This bill, LB 840, does, in fact, over a three-year period, reduce the impact districts face by a reduction in state aid. This reduction, we feel, would help provide, at least, an opportunity to our school districts to consider reorganization at the local level without the fact that or fear that they would lose equalization aid. The State Board of Education asks that 840 be considered from those perspectives.

SENATOR McKENZIE: Thank you, Dennis. Any questions? Senator Bernard-Stevens.

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SENATOR BERNARD-STEVENS: Dennis, Just a couple. In... since 1059 has been a state law, any idea off the top of your head, ballpark figure, of how many mergers may have taken place in the last five years or so?

DENNIS POOL: We've been averaging, up until this past year, about twenty-five districts per year reorganizing; in other words , consolidations reducing the number districts in the state. The first year that LB 259 or the affiliation bill went into effect, the number of districts reduced by nearly fifty. This past year, we only had fifteen districts in reduction. The average, over that period of time, would still be about twenty-five to thirty districts per year. Reorganization in the State of Nebraska has primarily been at the Class I level. In other words, we have not had very many in the past five years; I think we've only had about four situations where we've had school districts of the K-12 classifications consider reorganizations and then the really only successful one that we've had in the previous years was the reorganization of Southern Valley in Furnas and Harlan Counties an then this year we're going to have the reorganization of Big Springs and Brule in the western part of the state so those are the only K-12 reorganizations we've had in the recent five years.

SENATOR BERNARD-STEVENS: But, in Nebraska though, we used to have... I mean, our goal, we had one territorial Governor that wanted ten thousand school districts so we've gone from an incredibly high number to still a number that's way too high but considerably lower from what it was and all that was done without any incentives whatsoever. I guess the question that still bugs me at some point, is there data showing that keeping the field just like it is now, that the rate of consolidation as 'it's been taking place, and it happens because of economic reasons for the most part, that that there's any indication, that because of the state aid, that the rate has slowed down?

DENNIS POOL: There are no data that would provide firm research base for that, at this point. I know of a researcher at the University of Nebraska who is currently studying that as a part of their dissertation question and, hopefully, sometime soon we'll have some firm answers for that but we do not have any firm data on that. The other side of this is that since 1059 has been in place, we have the situation where it does reduce or tend to reduce, because of the equalization concept, the aid. We know that is a fact. Prior to that point in time, a reorganization of

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districts, especially from the categorical sense of our funding formula, it was actually... it would be to their incentive to reorganize. So, I guess, from the intuitive perspective, I think that's where we're hearing that but as far as having any firm, concrete data, Senator, no we do not have any at this point in time.

SENATOR BERNARD-STEVENS: Okay, that's kind of what I thought; and the last question is, I'm always puzzled by the argument that we're going to lose state aid and that's a bad thing when, in fact, if a consolidation takes place, if they, in fact, lose state aid, it is because they have a better ability to pay for their own education because of the increased property values that have gone into their district so one the one hand, you can't ... on the one hand I seem to hear them say, we're a poor district and, by God, we want to stay a poor district. We want to keep our state aid money rather than saying, we're a poor district, we'd like to be a better district and we understand we'll lose our state aid but that's all right because we're better off.

DENNIS POOL: That's correct and there is the impact of the property valuation will reduce that aid. In fact, the point is then, we are comparing school districts, remember on the tier structure, based on districts of comparable size. So two districts who were, by the tier structure, perceived as in a greater need. All of a sudden now, they come together. If they were both high need districts, probably the impact of this reorganization would not be as dramatic in that sense because of the fact that they do continue to have a high need with probably, even though it's a consolidated valuation base, it still won't be as great as it would have been to support that so the aid will continue to come into that, So, the formula is designed to be dynamic and to reflect those variables; and I guess the argument counter to that is is that while we reorganize, we do have more valuation base, there is a period of time where we do have to consolidate our programs, we have to look at staffing concerns. The other side of the coin that I hear from reorganized districts which is a valid one as well is that, when we reorganize, we now have a more ... more students so we have a critical mass of pupils that would allow us to offer some programs, some instructional programs that we were not longer...that previously we were unable to afford to offer and so now we choose to offer those programs and so, if you were to say, we are going to reorganize school districts and keep their expenditure level to the exactly the same level, then I think. you would see a reduction in spending but we don't always see a reduction in ... those efficiencies in

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spending aren't as obvious, initially, when you reorganize a school district. It may take a couple of years before those efficiencies begin to surface.

SENATOR BERNARD-STEVENS: Okay. Thank you, Dennis.

SENATOR McKENZIE: Senator Wickersham.

SENATOR WICKERSHAM: Well, a couple of questions, but first I think I have to comment on a remark that Senator Bernard-Stevens made about having school districts merge and having more property and therefore increased ability to pay. I think that has been on of the problems with our formula that real estate doesn't really represent any ability to pay. What I'm really reminded of by those kind of remarks, Senator, is the lending policy the banks had in the late '70s, early '80s, you could borrow any amount of money you had equity; but you couldn't pay it back. And, ultimately, so that was a failed policy, I'm a little concerned that we might, likewise, have a failed policy if we simply rely on an asset that doesn't necessarily relate to an ability to pay- But, I think, Dennis, if I remember correctly, there was a proposed reorganization about a year ago that did not occur. The Blue Hill merger, proposed merger? I understood from comments that that probably didn't go because of the affect the merger would have had on the levies of the property owners in the combined school. Have you had any discussions with individuals about that particular merger?

DENNIS POOL: Discussions with board members and administrators from that project, as well as the consultants that worked with it and that was one of their primary concerns is that the data, of course, and we did some ... my staff does work with school districts who are looking at reorganization and one of the first things that the school districts want to examine is, what is this going to do to our state aid? And we had provided them with some information and that was one of the things that it did illustrate would be that there would be a reduction in aid. And I just simply want to say that although that was a component, I am certain that it wasn't the only component but it was a primary factor.

SENATOR WICKERSHAM: No, but it was certainly a factor, peer knowledge, that was certainly a factor, that people...

DENNIS POOL: Yes.

SENATOR WICKERSHAM: ... were discussing and were concerned

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about.

DENNIS POOL: Yes.

SENATOR WICKERSHAM: Yeah. And then I think then, we have some recent experience with a merger between Lyman and Morrill. Did that turn out very well for those school districts?

DENNIS POOL: Well, the...

SENATOR WICKERSHAM: My recollection is they lost about three hundred thousand dollars in state aid and weren't aware that they were going to lose three hundred thousand dollars.

DENNIS POOL: Well, again, that would have been one of the very first K-12 reorganizations after the implementation of 1059 ...

SENATOR WICKERSHAM: Yeah.

DENNIS POOL: ... and I think it prior to those people beginning to ask that question.

SENATOR WICKERSHAM: Yeah.

DENNIS POOL: And the districts there, it continues to function and I'm certain they have struggled to make up that difference now but, yes, they did have a reduction in aid.

SENATOR WICKERSHAM: Yeah. And I guess one of the things -that I'm concerned about, if you have a substantial reduction in one year, you're unlikely, or at least it's my impression, that you're unlikely to be able to cover that reduction with cuts in spending so it necessarily involves perhaps a substantial increase in levies, is that an accurate perception?

DENNIS POOL: That would be a typical budgetary solution to the problem.

SENATOR WICKERSHAM: Yeah.

DENNIS POOL: Another compounding factor of that is typically, when school districts do reorganize, and I think there will be those who will testify to this impact, is that they, also, are typically, at that point in time, looking at a new facility and so you also...

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SENATOR WICKERSHAM: Yeah.

DENNIS POOL: ... have additional costs in respect to that.

SENATOR WICKERSHAM: Yeah. And related to that, it's always been my experience, the taxpayers fail to understand large swings in their levies, whether it's up or down. They get ... well, usually, they're more apprehensive about an upswing but it has always been my experience that they're far more interested in seeing a level levy than one that has gyrations one way or the other.

DENNIS POOL: I'm typically the culprit, or accused of being the culprit...

SENATOR WICKERSHAM: Yeah.

DENNIS POOL: ... in that. However, a superintendent probably would be the best one to answer that question. it certainly does have an impact upon on their budgeting.

SENATOR WICKERSHAM. Yeah. The other thing, you noted that we, of course, have had a number of mergers over the years, and, in fact, you said we're averaging about twenty-five a year. Those are certainly not voluntary mergers, at least that's what I understood you to say. That those are Class Is that probably lack the students to maintain a school, is that...

DENNIS POOL: Well, it's still a voluntary decision...

SENATOR WICKERSHAM: ... a more accurate characterization?

DENNIS POOL: ... there's periods of time when they continue to operate without...

SENATOR WICKERSHAM: Yeah.

DENNIS POOL: ... children or at least have, to hold on to their ability to exist. But, yes, those have been primarily diminished enrollments and/or... I think the one ... the year we had the fifty reorganizations in that year was in anticipation of the impact of affiliation.

SENATOR WICKERSHAM: Um-hum. Okay. All right, thank you.

SENATOR McKENZIE: Thank you. Other questions? Senator Bernard-Stevens.

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SENATOR BERNARD-STEVENS: Dennis, just one, one other one. It ... it ... from. your discuss ... from your observations, consolidation discussions that have gone one with school districts, and, obviously, we both know that those kinds of points can be very heated and very emotional, but what would make it ... would it make any difference if school district A who felt that they were going to have ... their levies ... what they were going to have to pay, were going to go up; school district B were going to go down from where they were, similar to the Blue Hill or Big Springs, which one...

DENNIS POOL: That was the Big Spring one...

SENATOR BERNARD-STEVENS: Yeah.

DENNIS POOL: ... where there was a dramatic...

SENATOR BERNARD-STEVENS: Yeah, that the one school district may vote it down, at some point, because they see that they're going to have to pay more. Okay, in this bill, we've got the incentive, but the incentive is only for a brief period of time, what for three years or so as it ratchets, it's a hundred percent, then it's sixty-six, and then what, I assume thirty-three and then zero; but at the end of that period, the same effect is going to take place, I would assume. So, wouldn't the argument be the same, that, you know, that it's not going to be immediate but we're going to see a major impact whether it's this year or three years from now? So I guess my question is, we don't really take the debate about the impact on the school district away with this incentive. We just delay the pain for a brief period of time, do we not?

DENNIS POOL: Senator, in essence, what this does is it implements a reorganization, hold harmless for a three-year period, or diminishing hold harmless; and anytime we do any kind of averaging and you say, we're going to delay the impacts of the change in aid over a three-year period, for one group of schools. On the other side of the coin, you are using equalization dollars for those concepts and saying to schools who, by the formula's mechanics, would say, you should be getting more aid and so, in essence, then you're holding that group of districts.... It's a hold harmless that is the expense of those other districts who would be receiving more aid. And that's the policy question that you weight, is the value of these kinds of things. Is it that, if you use equalization dollars to provide removal of disincentives or provide incentives, is it going to provide

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for a more efficient reorganization for our school systems across the state so, after a period of time, that the equalization dollars that we do have available, as they come back in to the formula, after this three-year period, can be utilized more equitably. And I think that's kind of where you're at, is that, yes, with the ... on one Bide you're holding them harmless and, I guess to coin a phrase, hold harmful, I think that's been used on the other side of that so that's the problem.

SENATOR BERNARD-STEVENS: Thank you.

SENATOR McKENZIE: Senator Wickersham.

SENATOR WICKERSHAM: Just maybe one or two questions about Big Springs and Brule. I visited with those superintendents and I guess, even though it's indicated they're going forward with the merger, it's my recollection from conversations with them that that was really a very long process for those schools. They've been cooperating over many, many years in terms of curriculum and shared classes and that it was really an outgrowth of a long-term effort. It wasn't anything that they suddenly decided to do and that truly might happen regardless of anything else that we did. Is this accurate?

DENNIS POOL: I think so. Yes, I've worked with those two schools and it has been...one of the... I've used that reorganization and held it up to others as a model. I mean, they really did start from more...from a cooperative kind of a process. In fact, I was at a board meeting speaking to their boards one time when their senior classes came in and asked the boards if they couldn't graduate together.

SENATOR WICKERSHAM: Yeah. Do you know, are there other examples of school districts that are pursuing that model, where they have, perhaps initially, small cooperative efforts and they've grown or are growing?

DENNIS POOL: Very limited. We have had several that have embarked down that road and, because of disagreements between boards or administrators or tried to share administrators, have found that it didn't work as well as they anticipated, and they backed away from it. So, I think their's is maybe more the exception than the rule.

SENATOR WICKERSHAM: So the more prevalent model is if there's going be a merger or a consolidation, someone conceives that it's studied and it's done within a

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relatively short...

DENNIS POOL: Two to three year period.

SENATOR WICKERSHAM: Two to three year period. Well, that was another question I thought I needed to ask you and I should have. If, you heard Senator Bernard-Stevens' suggestion, I think, that this bill should perhaps have a sunset, I guess I'd be worried about the time frame that would be appropriate if it takes two or three years to accomplish a merger typically, in order for persons, for school boards, administrators, begin to evaluate this bill, determine its impact. I know that Senator Bernard-Stevens suggested five years. That caused me some concern, I'm not sure we'd be able to give it a valid test within five years and perhaps you don't have any opinion but I'm concerned about what kind of time frames are involved in reorganizations and whether we would legitimately...

DENNIS POOL: And it ...

SENATOR WICKERSHAM: ... give people to respond to a change.

DENNIS POOL: And it certainly... and it certainly varies between groups of districts. Some of them happen, seem to just kind of, all of a sudden they've been talking about it for years in the coffee shops, and all of a sudden, they get ... the superintendents or some board members get together and, all of a sudden, it's a good project. Let's move forward on it. And other times, you know, they talk in the coffee shop but it's about, we'll never reorganize with those folks because they beat us last Friday night in the football game.

SENATOR WICKERSHAM: Um-hum.

DENNIS POOL: So I think it varies dramatically. I'd hate to put a time frame on it.

SENATOR WICKERSHAM: Okay. Thank you.

SENATOR McKENZIE: Senator Janssen.

SENATOR JANSSEN: Dennis, do you think that, with the common levy now, you're going to see more Class VI schools merging and making it a Class III school? Especially if there are incentives like this?

DENNIS POOL: I think it would certainly take the edge off

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of that type of a move, if they did that. I know that, in your district, I'm working with a Class I-VI system who is considering that move. And it certainly ... this type of a bill would, at least, take the edge off of that... that initial reorganization.

SENATOR JANSSEN: I think in some cases, this is probably the nudge that they need to accomplish what they're trying to do.

DENNIS POOL: Certainly, in a Class I-VI system, you have Class Is and potentially the Class VI high school are impacted dramatically differently through the system aid concept and this would allow them to make that move and have an opportunity not to have such a dramatic impact on their state aid.

SENATOR JANSSEN: I believe it gives them a little more time to work in their reduction-in-force, close some buildings, or possibly put up some new structures...

DENNIS POOL: Potentially...

SENATOR JANSSEN: ... and it would help them out a lot.

DENNIS POOL: Especially from the operational perspective.

SENATOR JANSSEN: Right.

SENATOR McKENZIE: Senator Bernard-Stevens.

SENATOR BERNARD-STEVENS: One more on a different area and I concede that Senator Wickersham can have the last word on the other ones. I've never tried to do that knowing I would fail. (laughter) So, shifting into another area, I'm looking at the fiscal note. Okay, and the fiscal note has about forty to fifty and then thirty-seven fifty. Has there been any thought about the equalization impact and I assume we're not talking about a large number of districts anyway but ... but... if... if the impact of what would have been in the equalization formula as if the monies were... if there was not a hold harmless, say this district simply didn't get as much state aid any more; therefore, there was more in the pool, you know, that for other people versus, you know, there being less money in the pool because it's still going to a district who technically doesn't qualify for it?

DENNIS POOL: That's a very legitimate question and with all of the incentives and the removal of the disincentive bills

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that we've had introduced this year, one of the things that we were unable to do for any of the Senators in the modeling process was to be able, what would be the potential impact of this legislation because we don't know how many districts would take advantage of that particular incentive or removal of the disincentive to move forward. Now, this particular bill is limited by the ... what's currently in the original hold harmless provisions as an incentive and it amounts to about two point nine million dollars so any reorganization that you'd have that would come in. So if the total incentive packages would be more than that, you would proportionally reduce all of those receipts down to not exceed that.

SENATOR BERNARD-STEVENS: But isn't there where we get in trouble and now I'm speaking of trying... if we're going to do something like this to make it better, at least policy wise, where we have promised X number ... where we have promised a hold harmless or we have promised X number of dollars for a hold... for option students and the money wasn't there and we've had to prorate it and so then people say, well, gee, we were told that we were going to be held harmless but we're a hundred thousand short of where we were before and the state's ... I mean, if we're going -to do the policy, how expensive would it be for us to say, no, we are truly going to have a hold harmless. If there's more districts that apply than what we thought so we go over the two point nine that's in the fund, that we'll cover it. And truly have a hold harmless, I mean, that's a policy decision that we'd have to make, wouldn't it?

DENNIS POOL: Certainly, that's a policy decision, yes, absolutely. I mean...

SENATOR BERNARD-STEVENS: But at this point, it would be prorated out and we don't know how much less... it may ... we don't know how much less of a hold harmless it would be even if we passed this, then do we?

DENNIS POOL: How much less than hold harmless?

SENATOR BERNARD-STEVENS: That was a poorly worded sentence, but saying, we don't know how much we're going to have to prorate or how much less districts will actually get.

DENNIS POOL: Right, because we don't know how many districts would actually qualify for this.

SENATOR BERNARD-STEVENS: Okay. Thanks.

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SENATOR McKENZIE: Dennis, I have one question. Is there any way that ... or maybe you can explain, if the hold harmless provisions, whether it's the one we now have or the one being proposed in this bill, impact the local effort rates?

DENNIS POOL: If they continue to exist, yes, they do impact the local effort rate because they do reduce the amount of funds available in the equalization fund; and, of course, the more money you have available in equalization means that we can then reduce the local effort rate...

SENATOR McKENZIE: Local effort rate.

DENNIS POOL: ... so if you were to just let it go away, we would have two point nine million dollars that would return to equalization and that would have an impact of lowering the equalization rate bringing more districts into eqaulization so any time we add more money into the equalization fund, it does have an impact on the local effort rate.

SENATOR McKENZIE: So, in other words, it would be an incentive for reorganization... or removal of a disincentive for reorganization but continuance of the disincentive for all of the other districts because we're just using the hold harmless money that was there before?

DENNIS POOL: That's the policy question.

SENATOR McKENZIE: Okay. Thank you.

MARTHA FRICKE: Senator McKenzie, Members of the Education Committee, my name is Martha Fricke. I'm the Director of Government Relations for the Nebraska Association of School Boards. The Nebraska Association of School Boards supports Governor Nelson's bill which offers incentives or disincentives which, however you want to say it, for ,reorganization. The loss of total state aid by individual school districts, as they merge or consolidate, has proven to be a strong disincentive to reorganization. This bill, which phases in that loss over three years, will enable the school districts to take care of the early-on costs of merging; and I think that was something that was talked about earlier, that in those first early years when those costs are higher, they will have those funds available and that they can then gradually become used to the new entity, and to learn to budget for it which I think is something you

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don't do perhaps in a year. It may take a couple of years to get your staff redone, to decide on your buildings, that sort of thing, and you also had that opportunity to learn better how to budget for that particular entity. The disadvantages of using equalization funds, and I would grant that that is a problem, we feel would be outweighed by the long-term gains which we keep hearing, of efficiencies and less school districts. I would like to address a little bit the sunset provision which came up, Senator Bernard-Stevens mentioned. My first idea on that was that probably wouldn't be a good idea. The one thing that that would do, say there was a five-year sunset; it would quickly show whether this would be an incentive. If, after five years, two or three school districts had merged; obviously, it would not be the incentive that we would have thought it would have been and it would allow the Legislature then to move on to something else, if it wasn't working so that would be one idea on a sunset. I, also, have it... I have a feeling that with this kind of an incentive, you might see some of the bigger schools merging. The thing that we haven't seen are the C-Is, the Bs, that sort of thing and yet I do know that there has been some visiting about that and I would suggest that you might see some larger schools which, of course, would, in most cases, need more money. They would tend to, if they were the larger schools, would be receiving perhaps more money in their state aid anyway so that might diminish those funds quicker but I would think that you might see more discussion among some of the larger school districts to merge with this kind of an incentive. Also, I think that if this bill passed tomorrow, I think it would probably be at least a year, it would have to be at least a year before any of these funds would be expended that way because, you know, unless there are two school districts who, in deep dark secret, have been out there talking merger and are waiting breathlessly for this bill to pass so that they could get this, you know, it takes time, as we already heard, to talk about merger. So, I think you'd be a year, two years away before you'd see many or much of this money being expended. That money then, because the hold harmless ends in August or September, that would have been probably in the equalization formula a couple of years before perhaps any of it would have been spent. That might cause a problem. That's just a suggestion and that ends my testimony and I would ask that you advance LB 840. (Exhibit B)

SENATOR McKENZIE: Thank you, Martha. Any questions?

MARTHA FRICKE: Thank you.

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SENATOR McKENZIE: Thank you. Next proponent, please? Do we have any other proponents? Wake up.

STAN KRAVIG: Good afternoon, Senator McKenzie and remainder of the committee. I'm Stan Kravig, Superintendent at Benedict Public Schools and also the President of the Nebraska Rural Rural Community Schools Association. We're here today to support LB 840 and would like to thank Senator Bohlke and Senator Wickersham and Senator Withem for its introduction. To me, it seems there are two fundamental questions about this bill and about reorganization in general. One, is reorganization desirable and is it wanted? And, two, will this bill help it? In answer to the first question, I think, in many cases, reorganization is desirable and I think it's fairly obvious from a state level, at least, that it is wanted. NRCSA has always stated that we do not oppose reorganization but feel that it should be a voluntary decision made at the local level. Second, will this bill help it? I don't think we know but I believe that it will. Should districts be penalized for providing or trying to provide greater opportunities and greater education for kids and for trying to run a more financially efficient system. Well, I think you would all agree, no, it shouldn't be; but the present system does do that and I think we've heard about that today. I think, if this bill, along with two other bills that were earlier discussed, were passed; I think we would see some things happening. Those two other bills that I'm referring to are LB 600 introduced by Senator Bohlke, which would actually provide incentives for reorganization and LB 676 introduced by Senator Wickersham, which would provide some early retirement incentives in the case of reorganization. Again, I think a package of these three bills would really cause some things to happen. I know, in my own situation, that we have, over the last several years, had numerous talks with neighboring districts and they're always amiable and we always say, yeah, in a few years, we'll probably need to do this as do the other districts. I think, if things like this go through, it will cause new talks and perhaps much more serious talks to take place. Nate Stineman is here today from the newly reorganized Southern Valley District on behalf of NRCSA and, of course, his district as well and he's going to fill you in a lot more on what the present impact, or the impact of the present system is on reorganization and I think that'll be real informative to you. Facilities have been mentioned a few times today and the three-year phase-in or phase-out, as well. When districts reorganize, we usually don't see immediate savings. There are added costs in those first few years and

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often facilities are one of those very large costs. There are also usually added transportation costs, as well. over this three-year period, 1 think that many of those Costs could be gotten a handle on, so to speak; perhaps not all of them, but that phase-in would certainly help. With that, I'm going to conclude and I'll let Nate be more specific but do you have any questions for me first?

SENATOR McKENZIE: Questions? Thank you, Stan.

STAN KRAVIG: Thank you.

NATE STINEMAN: Senator McKenzie and Education Committee, if I appear to be nervous, it's probably cause I am a little bit. This is the first time I've ever testified at a hearing but to give you a little background about myself, I am the Superintendent of the newly-formed Southern Valley Schools and I'm also a member of the Executive Committee of NRCSA. I guess I would like to tell you a little bit about a consolidation that, up to this point, has been a very successful and a very positive effort on the part of three school districts, primarily Beaver City, Orleans, and Oxford coming together and formulating a new school district which we call Southern Valley Schools and we are projected to go into operation in the Fall of 1995. 1 say it was a successful and positive one. Some of the figures that would bear that out is the fact that we had a sixty-six percent of the people that voted were in favor of the merger in all three of the districts. We had a fifty-nine percent voter turnout. The vote was taken in April of 1993 and I was elected as the superintendent and that reduced the administrative numbers from three superintendents to one. It was an effort on the part of the school district to begin ,saving costs as quickly as we could. I think a key. thing that you need to be aware of is the fact that is merger became effective on July 1, 1993 and here it is March of '95 and we have yet to come into ... or go into the new building. We are still, in all reality, we are three separate school districts even though we aren't. We still operate a K-12 in Beaver City and a K-12 in Orleans, and a K-12 in Oxford. We have plans for a new construction that should be completed in August and it is a new 7-12 facility in a central location and that's another thing that I think is important that, in order for this merger to be successful, I think the fact that it is a central site was paramount. So, hopefully, we'll be ready to go in August for the 1995-96 school year. Currently, we're undertaking probably the most unenviable position or job and that is, reduction-in-force. With the 7-12 facility, we are currently looking at

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reduction-in-force of approximately twelve teachers and one additional administrator. With the above mentioned reductions, we could be looking at, and I say, save, it isn't really a save, but a reduction in costs of four hundred and fifty to four hundred and sixty thousand dollars. After visiting with the school finance people in January, I wanted to get a jump on what our state aid might do and I was afraid that what's going to happen was going to happen and that is that approximately losing four hundred and fifty thousand dollars worth of state aid so some of the things that appeared to be appealing at the inception of the merger, is not quite so appealing now because if we lose four hundred and fifty thousand dollars and we save four hundred and fifty thousand dollars, it's a wash. And I don't feel, personally, I don't feel that that's the type of message that the State of Nebraska should be sending to school districts that possibly could be sitting back and looking at possibly the Southern Valley situation. I really feel like, to answer your question, Senator Wickersham, I think Blue Hill and Red Cloud and Guide Rock and Campbell did, in fact, look at our situation very closely because I was contacted numerous times by people in those areas and they were more concerned with what state aid might than what our people were. I applaud the people of our district for their farsightedness and their preservation of their education opportunities for the kids in our district. I don't know that consolidation ought to be financially rewarding for school districts but at least it ought to not make consolidation restrictive and I feel like now that's basically what's happening. In 840, the base year is established at the point that you're viewed as one district for state aid purposes so, in our case, that was July 1, of 1993 so we are in our second year, according to 840, we're in our second year right now and it really doesn't have a great deal of bearing on us. It makes a little bit of difference but not as entirely as it should or could, I guess, so what I would like to see is someway that maybe the base year could be established at a later date other than in our case, other than July 1. Here we are, we haven't completed the consolidation yet. It would be very beneficial and advantageous to us if the base was computed, say, July I of '95 when actually we'll become one school district because, unfortunately, most Of our cost savings have not incurred at this point. If measures are not taken soon to make consolidation attractive, I, again, emphasize that I feel like the wrong message would be sent out to other school districts that might be contemplating the same move. I ... I'm very proud of what we've done out there and I don't want to be in a position to go back to the patrons

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that made the decision based on what's good for kids educationally and go back and try to explain to them why 840 didn't impact Us like we thought it might. I don't believe it should be hinged on a timing basis, I think that something other than timing should determine when that base year is starting. I guess that's basically all I have. if you have any questions, I'll try to answer them.

SENATOR McKENZIE: Thank you. Senator Janssen.

SENATOR JANSSEN: Yes, sir, is ... you say are in reduction-in-force. You have twelve teachers that...

NATE STINEMAN: Yes.

SENATOR JANSSEN: ... you're eliminating and one administrator?

NATE STINEMAN: Right.

SENATOR JANSSEN: What ... how many administrators did you have in each of the three schools?

NATE STINEMAN: We had a total of five administrators prior to...

SENATOR JANSSEN: And all you could lose was one?

NATE STINEMAN: We had one superintendent, we will have one secondary principal and we will have a half-time superintend... or principal in each one of the elementaries which is three elementaries and then the other half-time administrator will help out at the junior-senior level.

SENATOR JANSSEN: Okay. What was your total, your anticipated total cost savings there?

NATE STINEMAN: Well, I figured roughly, Senator Janssen, fifty thousand dollars on the administrator and thirty-five, that's everything figured in there. Thirty-five thousand per teacher, that's insurance, all the fringes and.

SENATOR JANSSEN: You're right, yeah. Okay, thank you.

SENATOR McKENZIE: Other questions? I have a couple. What, I understood you correctly, I believe, to say you are going to go from three buildings to now four? Is that correct?

NATE STINEMAN: Yes, I did...

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SENATOR McKENZIE: You're keeping your elementary?

NATE STINEMAN: Yes, because we are... in order for the consolidation to be ... to take effect and to pass, the people indicated they would still like to have the attendance center, K-6, in their own community.

SENATOR McKENZIE: How many students will be in each of those K-6 attendance centers?

NATE STINEMAN: A high of probably a hundred and forty in Oxford, all the way down to probably ninety in Orleans and Beaver City somewhere in between. Projected enrollment is basically maybe fifty students a class, on the K-12.

SENATOR McKENZIE: Across the three schools?

NATE STINEMAN: Yeah. Our districts would be, basically, six hundred and twenty.

SENATOR McKENZIE: Did any of you talk to Sandy Creek to find out how they wished they'd built the building and put everyone in there before they spent money for four.

NATE STINEMAN: Yes. Yes, I did, we've talked about' that and that was one of the questions that we did on the feasibility study and it was very clear that the people were not in favor of consolidation if it meant giving up their attendance center but, hopefully, with a cost reduction that people can see, I think that the consolidation of elementaries is in the future, also. How far in the ... how near in the future, I'm not certain.

SENATOR McKENZIE: I have one more question then. How far is it from Beaver City or from any of the communities to the new building?

NATE STINEMAN: It'll be ten miles for Beaver City, ten miles for Orleans and eight miles for Oxford. The new facility will be at the junctions of 46 and 89 Highway which is eight miles straight south of Oxford.

SENATOR McKENZIE: Okay. Thank you. Senator Janssen.

SENATOR JANSSEN: What would be the "furtherest" distance you would have a student traveling? To your ...

NATE STINEMAN: To the 7-12, to the new facility?

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SENATOR JANSSEN: Yeah.

NATE STINEMAN: Feasibly, we could have a student travel twenty-five miles.

SENATOR JANSSEN: That doesn't sound too bad.

SENATOR McKENZIE: I have one more question. Your elementary students ... how large will the high school be then, or the junior/senior high? How many students will there be?

NATE STINEMAN: We'll have about three hundred students in 7-12.

SENATOR McKENZIE: Okay. Thank you.

NATE STINEMAN: I guess the only thing else I had was when you talked about the sunset clause, it might make difference to how some districts would react to that, depending on whether they had to build facilities or not. If they had to incur the expense of building a new facility, then it might have an effect on their perception of the sunset.

SENATOR McKENZIE: Sorry, you made me think of one more. How old are the elementary buildings in Beaver City, Orleans, and Oxford?

NATE STINEMAN: The newest high school building was in 1923. We were looking at approximately right at seven hundred fifty thousand to a million dollars of ADA work.

SENATOR McKENZIE: And that's not going to change?

NATE STINEMAN: No, but the elementaries are not in that condition as far as ADA. I'm talking 7-12 facilities.

SENATOR McKENZIE: Okay. The elementaries are newer?

NATE STINEMAN: Yes. The elementary in Oxford was built in '75 and I believe the elementary in-Beaver City was built in the late '50s, mid to late '50s so they're both nice buildings.

SENATOR McKENZIE: And Oxford?

NATE STINEMAN: That was Oxford...

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SENATOR McKENZIE: Orleans?

NATE STINEMAN: ... the one in Beaver City, or excuse me, Orleans, is in need. We'll have to do something different with the elementary facility whether it be modular classrooms or whatever.

SENATOR McKENZIE: Okay. Senator Janssen.

SENATOR JANSSEN: Do you have any other Class Is within those other districts ...

NATE STINEMAN: No, we do not.

SENATOR JANSSEN: ... that are going to be abandoned?

NATE STINEMAN: No.

SENATOR JANSSEN: Those are the elementary schools ...

NATE STINEMAN: That's correct.

SENATOR JANSSEN: ...are in those three towns and that's it...

NATE STINEMAN: Yes.

SENATOR JANSSEN: ... they don't have any other? Okay.

SENATOR McKENZIE: Thank you.

NATE STINEMAN: Thank you.

SENATOR McKENZIE: Next proponent, please?

DEAN EDSON: Senator McKenzie , Members of the Committee, I'm Dean Edson, registered lobbyist with Nebraska Farm Bureau. (Exhibit D) I have a letter here from one of our members who was going to testify on behalf of the organization but couldn't make it in due to the weather. Rather than read the entire letter into the record, many of the points have already been made. I would just encourage you to support 840 and advance it to the General File. This bill might be just the push that helps some of these school districts reorganize And create some greater efficiencies. Thank you.

SENATOR McKENZIE: Any questions? Thank you. Anyone else wishing to testify in support of the bill? Anyone wishing to testify in opposition to LB 840? Anyone testifying in a

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neutral capacity. Senator Bohlke waives closing. That will conclude the hearing on LB 840 and I turn the chair back over to Senator Bohlke.