STATE OF HAWAII
BOARD OF EDUCATION
FINANCE AND INFRASTRUCTURE COMMITTEE
Queen Liliuokalani Building
1390 Miller Street, Room 404
Honolulu, Hawaii 96813
Thursday, May 16, 2019
Kenneth Uemura, Committee Chairperson
Bruce Voss, Esq., Committee Vice Chairperson
Brian De Lima, Esq.
Patricia Bergin, Ex Officio
Margaret Cox, Ex Officio
Christina Kishimoto, Superintendent
Amy Kunz, Assistant Superintendent and Chief Financial Officer, Office of Fiscal Services
Dann Carlson, Assistant Superintendent, Office of School Facilities and Support Services
John Chung, Public Works Manager, Project Management Section, Office of School Facilities and Support Services
Alison Kunishige, Executive Director
Kenyon Tam, Board Analyst
Regina Pascua, Board Private Secretary
Irina Dana, Secretary
I. Call to Order
The Finance and Infrastructure Committee (“Committee”) was called to order by Committee Chairperson Kenneth Uemura at 8:30 a.m.
II. *Public testimony on Finance and Infrastructure Committee (“Committee”) agenda items
Committee Chairperson Uemura called for public testimony. The following people provided oral testimony.
|Barry Francis||Puu Panini Hui||IV.B. Update on status of implementation of Act 155 (Hawaii Revised Statutes Section 302A-1151.1, Pilot program for lease of public school land): contractor and partnership plans and expenditure plan||Comment |
Barry Francis, Puu Panini Hui, testified on his concerns regarding Act 155, including the lack of community participation. He encouraged the Committee and Department of Education (“Department”) to solicit community feedback and engage communities.
Christina Kishimoto, Superintendent, stated that the Department is targeting dates to hold community meetings and noted that the Department would engage communities prior to publishing a request for proposal (“RFP”). She stated that she could speak with Francis after the Committee meeting and highlighted the importance of community input.
Committee Chairperson Uemura stated that the Board of Education (“Board”) would not take action on Act 155 sites until the Department presented its recommendations, as the Department would need to solicit community input and engage communities prior to recommending sites to the Board. He stated that it is too early to know if the Department’s recommendation would include the site to which Francis referred.
Francis stated that current community members are not against development, but they would prefer constructive development that fits in with the existing community.
Hawaii State Representative Amy Perruso testified on concerns that communities have raised to her, including the Department’s transition to authentic assessments, funding for the implementation of authentic assessments, the Department’s contracts, cost-savings and budget allocations, the Department’s funding for charter schools, and school-level frameworks.
III. Approval of Meeting Minutes of April 18, 2019
ACTION: Motion to approve the Finance and Infrastructure Committee Meeting minutes of April 18, 2019, and the Finance and Infrastructure Committee Meeting Executive Session minutes of April 18, 2019 (Voss/Takeno). The motion carried unanimously with all members present voting aye.
IV. Discussion Items
A. Update on the Department of Education’s Biennium Operating Budget Request for Fiscal Years 2019-2021: Legislative Conference Decisions
Amy Kunz, Assistant Superintendent and Chief Financial Officer, Office of Fiscal Services, reviewed the Department’s biennium operating budget request for fiscal years 2019-2020 through 2020-2021, including legislative conference decisions. Kunz noted that the Department of Budget and Finance (“B&F”) has not released instructions regarding implementation and that the Department expects B&F would not restrict funding outside of the main budget bill.
Kunz stated that the Department requested additional general funds of $21.4 million for Fiscal Year (“FY”) 2020 and $21.9 million for FY 2021. The Legislature provided totals of $9.5 million for FY 2020 and $7 million for FY 2021 of incremented general funds. She highlighted that the Department did substantial work in regards to reprioritizing funds through collective bargaining, updating salary requirements, and adjusting internal savings. She noted that the budget bills excluded three trade-off and transfer requests of existing funds to fund program needs consistent with the Department’s budget priorities, which reduced the Department’s operating base by $257,158 in both FY 2020 and FY 2021. She stated that the Department’s repurposing of its budget ensures that the Department has funds where it plans to expend, increases transparency, and increases knowledge regarding the allocation of funds.
Kunz stated that the Legislature did not approve various requested positions even though the Department did not add funding requests to many of these positions because the funding requests occurred through the trade-off and transfer process. She noted that the Department has funding available to pay salaries and has the authority to establish and fill temporary positions. However, many of these positions are difficult to fill. She detailed that the Legislature did not fund positions that are of high priority to the Department, including positions within the data governance area. She explained that staff within the data governance area manages the Every Student Succeeds Act accountability metrics. Kunz detailed that the Department has requested these positions from the Legislature for the past several years, and the Department needs to determine how to continue work in this area. The Department also did not receive the payroll positions it requested to assist with new system implementation. The Department will need to find innovative ways to ensure that staff has the appropriate resources and support to manage payroll.
Kunz stated that the Department requested $3.4 million for workers’ compensation but received only $2 million in each fiscal year. The Department also requested $6 million in funds for auxiliary services but received only $2.4 million for one fiscal year. She stated that the Department plans to return to the Legislature for additional budget requests in the future. Kunz stated that the Department would continue to educate the Legislature on its budget so that the Legislature understands the Department’s processes.
Committee Member Brian De Lima commented that the Legislature might not have funded payroll because the Legislature has concerns regarding the Department’s use of payroll savings and reallocation of special education funds. He emphasized the importance of the Department reprogramming funds to meet special education needs, especially because teachers need additional resources. Committee Member De Lima commented that the special education taskforce presented on inclusion and training and stated that he would like an update on implementation efforts. He stated that the achievement gap is a crisis, and the Department needs to ensure that it spends special education funds on special education needs.
Committee Vice Chairperson Bruce Voss asked why the Legislature approved funds for EDN 150 but did not approve positions. Kunz explained that there are general concerns regarding growing government, and the Legislature expects that the Department would give up 166 positions in other areas in order to receive 166 new positions. She stated that the Department has the authority to use funds to establish unappropriated positions or contract employees. The Department is reviewing how to implement laws efficiently in a manner that benefits students. Committee Vice Chairperson Voss stated that the Department would need to spend funds within EDN 150 if the Legislature had approved positions for EDN 150. He stated that EDN 150 covers applied behavior analysis (“ABA”), which is important for individualized education programs. Committee Vice Chairperson Voss asked for assurance that the Department would use the funds that the Legislature appropriated for this area on ABA and special education. Kunz confirmed that the Department plans to do so by either establishing unappropriated positions, contract work, or training to support ABA and special education.
Committee Chairperson Uemura expressed concern regarding how reductions would affect the Department’s ability to meet strategic outcomes. He asked how the Department is addressing its overall vision and stated that the Committee needs to know whether the Department is unable to close the achievement gap due to a lack of funding. He noted that the Department requested an additional $21.4 million in general funds for FY 2020 but only received $9.5 million. He asked how this shortage would affect the Department’s ability to meet Kishimoto’s priorities. He stated that the Department would need to provide the Committee with this information moving forward. Kunz explained that the Department typically engages the Board regarding its implementation plan so that the Board could provide feedback regarding how the Department should prioritize funds. She stated that the Department plans to present its implementation plan in July after it learns of B&F’s decisions regarding potential restrictions. Committee Chairperson Uemura stated that the Department would need to explain how certain decisions would affect programs at its next presentation.
Committee Member De Lima asked about the Department meeting shortfalls with fund balances excluding weighted student formula (“WSF”). Kunz confirmed that the Department sometimes meets shortfalls with fund balances. Committee Member De Lima asked about the Department’s carryover funds. Kunz detailed that the Department’s carryover the prior year was $47.9 million, including $24.5 million of WSF funds. Committee Member De Lima stated that the Department could meet its shortfall if it meets similar targets. Kunz explained that the Department needs to be careful and detailed that it might not have funds for certain positions or programs. Committee Member De Lima asked the Department to include how it plans to use non-WSF fund balances when the Department presents in July.
B. Update on the Department of Education’s Biennium Capital Improvement Program (“CIP”) Budget Request for Fiscal Years 2019-2021: Legislative Conference Decisions
The Committee took this agenda item after agenda item IV.C, entitled “Update on Department of Education fiscal reports as of March 31, 2019 (Comparison to Budget, School Food Service, Student Transportation, School Impact Fees, Carryover Funds, Utilities, Impact Aid receipts, Repair and Maintenance backlog, and Capital Improvement Program).”
Dann Carlson, Assistant Superintendent, Office of School Facilities and Support Services, reviewed the Department’s biennium capital improvement program (“CIP”) budget request for FYs 2019-2020 through 2020-2021, including legislative conference decisions. He highlighted that the Legislature appropriated a total of $769 million for the upcoming fiscal biennium. He highlighted that the Department briefed the Legislature on its CIP project tracking system, which provides transparency and visibility. Carlson highlighted that the Legislature appropriated $70 million for projects through the Department’s job order contracting. He explained that job order contracting allows the Department to contract several vendors through competitive bidding to perform repair projects at fixed prices over the life of a multiyear contract rather than having to design and bid individual repair jobs. He detailed that other appropriation highlights include funding several Department priority projects, including Mokapu Elementary, East Kapolei Middle, and Pohukaina Elementary. Carlson stated that the Department of Defense is providing 80% of the funding for Mokapu Elementary.
Carlson detailed that the Department received funds for individual line-itemed projects rather than a lump sum for capacity. He stated that the Department received $110 million for repair and maintenance (“R&M”) and $5 million for compliance. The Department also received funding to renovate prekindergarten classrooms statewide, and it plans to work with the Executive Office on Early Learning. He noted that the Department received $10 million for health and safety and $8.5 million for FY 2020 for the Department’s converged infrastructure network and support. He detailed that the Department provided the Legislature with a list of individual projects that align with the Department’s priorities, and the Legislature line-itemed various projects. He noted that the Department would enter these projects into its CIP project tracking system.
Committee Vice Chairperson Voss expressed concern that some of the individual line-itemed projects do not align with the Department’s priorities. He asked the Department to provide additional information regarding how many projects align with priorities versus how many do not in a future presentation. Committee Vice Chairperson Voss expressed concern that the line items are not consistent with Kishimoto’s emphasis on equity and do not ensure that all schools receive proportionate amounts of funds. He asked the Department to report on how many projects do not align with the Department’s priority list in the future. Carlson detailed that the Department needs to ask B&F whether the Department needs to submit allocation requests if projects do not align with the Department’s priority list.
C. Update on Department of Education fiscal reports as of March 31, 2019 (Comparison to Budget, School Food Service, Student Transportation, School Impact Fees, Carryover Funds, Utilities, Impact Aid receipts, Repair and Maintenance backlog, and Capital Improvement Program)
The Committee took this agenda item before agenda item IV.B, entitled “Update on the Department of Education’s Biennium Capital Improvement Program (“CIP”) Budget Request for Fiscal Year 2019-2021: Legislative Conference Decisions.”
Kunz reviewed the Department’s fiscal reports as of March 31, 2019. She stated that the general fund comparison report shows that expenditures are 6% above FY 2018 actuals as compared with a 4% variance to three quarters of the FY 2019 allocation. She noted that expenditure levels are mostly due to collective bargaining increases and detailed that the Department would have a carryover amount of $51 million if it closed the fiscal year in March. She stated that variances are due to specific contracts that the Department has not yet paid. The Department plans to pay these contracts through the fourth quarter and does not anticipate a large carryover amount as it enters into the next year.
Kunz stated that school food service revenues, expenditures, and balances are in line with expectations. She stated that federal government shutdown reimbursements are in line with amounts the Department received through March 31, 2018. Kunz emphasized the importance of the Department maintaining its operating cash because the federal government continues to experience budget issues. Kunz stated that student transportation expenditures are in line with expectations at this time of year. The Department fully encumbers contracts in the beginning of the year and liquidates as it continues through the year. She noted that the remaining balance is tied to payroll that the Department needs to complete. The Department does not anticipate carryover or lapsing funds.
Kunz reviewed the school impact fee report, including fair share and impact fee collections and current balances. She detailed that fair share pertains to land developers asked to contribute to the cost of building educational facilities and impact fees were created by the Legislature in 2007 to provide a uniform methodology of determining and collecting contributions toward educational facilities. She detailed that the Department is determining how to expend funds in these areas and noted that the report would change as the Department adds expenditures.
Committee Chairperson Uemura asked if the Department has to use impact fee amounts and fair share receipts within particular districts. Kunz confirmed that it does. Committee Chairperson Uemura stated that he would like reports to include expenditures in the future.
Committee Member Catherine Payne asked if the Department plans to spend impact fee amounts on charter schools. Kunz stated that it might be possible if the charter school is a conversion charter school.
Committee Vice Chairperson Voss asked about the Department’s expenditure plan. Kunz stated that the Department plans to provide an outline of how it would select schools and projects. Committee Chairperson Uemura clarified that the Committee would not need to approve the Department’s expenditure plan but would appreciate receiving updates.
Committee Member Kawano asked how the Department knows that the amounts it receives are correct amounts. Carlson detailed the process and stated that the Department relies on the City and County of Honolulu to issue certificates of occupancy only after developers pay the impact fee. Committee Member Kawano asked how the Department verifies amounts. Carlson explained that the Department crosschecks to ensure that developers pay correct fees for specific districts. Committee Member Kawano stated that the Department is unaware whether it is receiving correct amounts. Carlson stated that he would get back to the Committee.
Committee Chairperson Uemura asked about accounting issues and emphasized the importance of the Department maximizing revenues.
Kunz reviewed the carryover fund report and stated that the Department expended balances the Department carried over as of June 30, 2018, except for the early learning program, which is aware of the remaining balance. She detailed a five-year historical overview of carryover balances, including amounts the Department carried over in the last five years, expenditures, and lapsed funds pertaining to EDN 700.
Committee Chairperson Uemura asked whether carryover balances are different at the school level. Kunz explained that the five-year historical overview shows WSF carryover amounts as well as carryover amounts in other programs. She explained that schools can carryover funds but must expend carryover funds within six months. She noted that schools have until December 31 of each year to expend remaining funds. Committee Chairperson Uemura asked if school reserve balances should reflect zero by the end of December. Kunz confirmed that this is correct.
Kunz stated that increases in gas, water, and sewer charges continue to drive utilities expenditures. However, increased alternative energy generation and loan repayment is offsetting these increases. She stated that the overall cost per kilowatt-hour has increased about three cents, but reduced consumption has offset this increase. She stated that the market drives the cost and noted that the cycle is hard to predict. Kunz stated that the Department would need to watch the overall budget and continue to leverage alternative energy to see savings in this area.
Kunz stated that impact aid receipts for FY 2018 are finalized at $45.1 million at 96.19 percent of the Learning Opportunity Threshold (“LOT”). She reviewed the historical five-year overview and noted that the Department has filed initial applications related to the September 2018 counts and is taking additional steps to compile missing or incomplete cards to submit the amended application no later than June 28, 2019. She stated that the Department would receive a collection the following fiscal year.
Committee Chairperson Uemura asked about trends. Kunz stated that the Department is trending similarly to the previous year and highlighted that the federal government continues to fund impact aid at higher levels. Committee Chairperson Uemura asked about LOT. Kunz explained that the federal government discounts funds due to a lack of funding for the program and detailed previous LOT percentages at which the federal government funded impact aid.
Committee Chairperson Uemura asked about the Department’s impact aid summary. Kunz explained that the Department received $55 million this fiscal year for applications from previous fiscal years. She noted that these amounts are final amounts from previous years.
Committee Member Kawano asked about incomplete and not federally connected categories. Kunz detailed that the Department is working through incomplete cards to see whether individuals qualify and is having schools collect missing information and parent signatures so that the Department could move cards from the “incomplete” category to the “returned” category. Committee Member Kawano asked whether it is possible for the Department to separate the categories of “not federally connected” versus “incomplete.” Kunz stated that the Department is attempting to retrieve these data.
Committee Vice Chairperson Voss asked what happens if receipts exceed projections. Kunz detailed that the Department historically used funds to cover priorities, such as substitute teacher costs, and shortfalls in various areas, such as student transportation, programs, and utilities. The Department’s priority moving forward is to ensure that the Department has a budget available for substitute teacher costs, and then it could review programs and areas not covered through the Legislature. She noted that the Department does not want to use these funds to establish programs because the funds are one-offs rather than consistent. However, the Department could use funds to launch programs or upgrade systems. Committee Vice Chairperson Voss asked if the Department sets these funds aside after covering substitute teacher costs to cover shortfalls due to legislative allocations. Kunz confirmed that it does.
Kunz reviewed the R&M backlog. She stated that the Department reported its backlog annually in the past through status updates to the Board and Legislature. The Department’s quarterly reporting of its R&M backlog would provide a snapshot that would invariably fluctuate throughout the year due to various factors, including the legislative budget and funding cycle and the project completion cycle. She detailed that the Department plans to accumulate this report on a rolling five-quarter basis for comparison purposes. Kunz detailed major buckets, number of projects, and estimated costs. She stated that the Department included roof and gutter projects as top priorities in legislative reports, but current priorities are electrical issues and plumbing.
Kunz reviewed the CIP report, including allotments, encumbrances, expenditures, allotment balances, and significant projects. She stated that East Kapolei Middle School was the most substantial bid this quarter. Committee Chairperson Uemura commented on current allotments and asked if the Department has capacity issues. Kunz stated that the Department is working to ensure that funds do not lapse and highlighted efficiency through job order contracting. Committee Chairperson Uemura commented on how the Department could utilize allotments. Carlson detailed legislative allocations and stated that the Department is in the process of executing projects through its job order contracting system.
Committee Member De Lima entered at 8:59 a.m.
Committee Chairperson Uemura asked about projects. Carlson explained that the Department accounts certain funds and detailed how the Department pays for projects as the Department reaches completion milestones. Committee Chairperson Uemura asked about lapsing funds. Carlson stated that the Department submitted requests, and it is waiting for B&F to release funds. He detailed that the Department submitted a number of allocation requests and noted that these funds are in danger of lapsing if B&F does not act.
D. Update on status of implementation of Act 155 (Hawaii Revised Statutes Section 302A-1151.1, Pilot program for lease of public school land): contractor and partnership plans and expenditure plan
The Committee took this agenda item after agenda item IV.B, entitled “Update on the Department of Education’s Biennium Capital Improvement Program (“CIP”) Budget Request for Fiscal Year 2019-2021: Legislative Conference Decisions.”
Kishimoto reviewed work that the Department has completed, work that is in progress, and information that the Department shared in previous Committee meetings. She detailed that the Legislature approved Act 155 as an innovation pilot that allows the Department to leverage land assets to generate revenue for 21st century schools. She detailed that the Department is reviewing three potential sites, approaches, immediate next steps, and community engagement. The Department developed two processes for gathering feedback, and it plans to move forward with community forums during the summer. She noted that the Department would base its RFP development on community feedback.
John Chung, Public Works Manager, Project Management Section, Office of School Facilities and Support Services, detailed that the Department is committed to moving forward with due diligence and is consulting with the Hawaii Housing Finance and Development Corporation (“HHFDC”) and other community partners regarding methodology. He noted that there are instances where due diligence is unnecessary. Chung stated that Act 155 allows the Department to lease existing facilities. He stated that one effort is the direct-to-RFP methodology. This methodology consists of the Department developing an RFP for a particular site and issuing an RFP to the development community. He stated that the Department plans to target community input in the next month, and it would coordinate community engagement efforts with the Board.
Ex Officio Committee Member Patricia Bergin entered at 9:34 a.m.
Chung stated that the Department plans to continue due diligence on the 22nd Avenue site and is close to completing due diligence. The Department’s next steps are to prepare an environmental assessment, which might take 12 to 18 months. The Department is targeting December 2020 as the timeframe to issue RFPs, which might be a six to nine month process. The Department hopes to complete the RFP process by the middle of 2021. He stated that the Department is required to collect community input if it implements the direct-to-RFP method. It might take the Department three to six months to prepare an RFP, issue an RFP to developers, review developer proposals, and award a project. He stated that the Department would be targeting the Waialae Avenue site for the direct-to-RFP process, and it hopes to complete the process by the first quarter of 2020.
Carlson explained that the Department is trying different methodologies because Act 155 is a pilot program. The Department would like to see the outcomes of different efforts. Carlson stated that the Department rewarded a consultant contract in May 2014 to assist with implementation because Act 155 requires extensive development expertise that the Department does not have in-house. He stated that expenditures to date for the consultant contract are $812,553. He stated that he could provide the Committee with a list of different ways in which the consultant has helped the Department through the process. He noted that the consultant is currently gathering data that are necessary for the Department to prepare the RFP as recommended by HHFDC. Carlson stated that the Department in the last month reviewed sewer capacity issues, reviewed the passage of Senate Bill (“SB”) 1303, which extends state land leases from 55 years to 99 years, and updated a memorandum of understanding (“memorandum of understanding”) with HHFDC. The Department submitted the MOU to the Attorney General for review and the Superintendent’s approval.
Committee Chairperson Uemura asked the Department to include more detail in its timeline in future presentations. He stated that the 22nd Avenue site would be a good candidate for the direct-to-RFP method. He noted that developers showed interest in the site, according to responses to the Department’s request for information. Committee Chairperson Uemura asked the Department to review whether it could achieve milestones sooner than it presented in its timeline. Chung clarified that the Department is considering the Waialae Avenue site for the direct-to-RFP method.
Committee Vice Chairperson Voss commented that community members have legitimate concerns, including traffic congestion, and stated that the Department cannot wait to engage communities in the final steps. He encouraged the Department to reach out to community members and community representatives prior to holding community forums so that community forums are more productive. Carlson stated that the Department attended a neighborhood board meeting and highlighted that community engagement is the Department’s next step. He noted that the Department plans to engage communities prior to developing an RFP so that the Department could use community feedback to create an RFP.
Committee Chairperson Uemura expressed concern regarding the consultant contract and stated that he would like more information regarding the consultant’s role and data. He stated that the Department should be careful in how it expends funds because Act 155 is a pilot project, and the Department will only complete one project for now.
Committee Member De Lima asked about SB 1303 and other bills related to the Board of Land and Natural Resources. He expressed concern over the Board delegating the disposition of Department lands to other boards.
Committee Member Kawano stated that it would be difficult for the Department to expend $70 million each year for R&M due to capacity issues. He asked if the purpose of Act 155 is to generate additional funding for R&M or the construction of new schools. He asked the Department to include an expenditure plan in its future presentation so that the Committee could review whether property leases make sense. He noted that the Legislature might reduce R&M allocations if the Department plans to use Act 155 revenue for R&M. He asked if potential Act 155 revenue would be sufficient for the construction of a new school. Committee Member Kawano stated that he would like the Department to focus on potential expenditures in addition to the current project.
Committee Chairperson Uemura adjourned the meeting at 9:44 a.m.