STATE OF HAWAII
BOARD OF EDUCATION
FINANCE AND INFRASTRUCTURE COMMITTEE

MINUTES

Queen Liliuokalani Building
1390 Miller Street, Room 404
Honolulu, Hawaii 96813
Thursday, May 17, 2018

PRESENT:
Nolan Kawano, Committee Vice Chairperson
Brian De Lima, Esq.
Bruce Voss, Esq.
Kili Namau‘u, Ex Officio

EXCUSED:
Kenneth Uemura, Committee Chairperson
Lance Mizumoto

ALSO PRESENT:
Christina Kishimoto, Superintendent
Amy Kunz, Senior Assistant Superintendent and Chief Financial Officer, Office of Fiscal Services
Dann Carlson, Assistant Superintendent, Office of School Facilities and Support Services
Kenneth Masden, Public Works Manager, Planning Section, Facilities Development Branch, Office of School Facilities and Support Services
Stacey Aldrich, State Librarian
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 Vice Chairperson Nolan Kawano at 3:00 p.m.


II. *Public testimony on Finance and Infrastructure Committee (“Committee”) agenda items

Committee Vice Chairperson Kawano called for public testimony. There was no public testimony at this time.


III. Approval of Meeting Minutes of March 13, 2018

ACTION: Motion to approve the Finance and Infrastructure Committee Meeting minutes of March 13, 2018 (De Lima/Voss). The motion carried unanimously with all members present voting aye.
IV. Discussion Items

Stacey Aldrich, State Librarian, stated that the Hawaii State Public Library System (“HSPLS”) has not provided the Committee with an overview regarding library facilities across the state.

Aldrich highlighted that HSPLS has 51 public library branches, including Nanakuli Public Library, which it opened in April. Aldrich detailed that HSPLS has 12 public and school library locations and two administrative building locations. She noted that most of its branches are located on Oahu. Aldrich highlighted that HSPLS has 24 branches on Oahu, six on Kauai, six on Maui, 12 on Hawaii Island, one on Molokai, and one on Lanai. Aldrich stated that 60% of HSPLS’s buildings were built before 1970. The first library, Hawaii State Library, was built in 1913 and was funded through a grant from Andrew Carnegie. The building itself cost $127,000 at the time. She stated that the State built the first joint library, Pahala Public and School Library, in 1963. HSPLS’s newest library is Nanakuli Public Library, which is 18,000 square feet and cost $15.5 million to build. She highlighted that HSPLS designed Nanakuli Public Library’s space to be a community meeting or gathering place with the theme of a village. Nanakuli Public Library has lots of technology, and HSPLS is in the process of building a sound room where individuals can record and save stories. She highlighted that Nanakuli Public Library is the first library to have English and Hawaiian signage and further highlighted that HSPLS plans to replicate this through all of its locations. Aldrich emphasized the importance of having signage in both English and Hawaiian because both are official languages of the state.

Aldrich stated that in the State built 15 libraries in 1960s. She noted that the issue with old buildings is that the State did not design them for the future of libraries, including technology. Aldrich detailed that most power sources are located in walls rather than floors. She highlighted that HSPLS is reviewing ways in which it could upgrade spaces to make them more usable and to meet the needs of 21st-century libraries.

Aldrich reviewed how HSPLS maintains its buildings. She explained that it maintains its buildings with repair and maintenance (“R&M”) funding, capital improvement program (“CIP”) funding, and a memorandum of understanding with the Department of Accounting and General Services (“DAGS”), who provides support. She detailed that each year DAGS does a review of each of HSPLS’s buildings and creates a list of issues that it puts into an R&M or CIP list. HSPLS works with DAGS to identify its priorities. DAGS manages HSPLS’s CIP project contracts and collaborates with HSPLS to make sure projects support operational needs.

Aldrich reviewed HSPLS’s R&M budget for the last four years. She highlighted that the Governor and Legislature increased R&M funding for HSPLS. Aldrich noted that HSPLS provided the Legislature with a report that reviews each library and how much it costs HSPLS to do repairs for each building. Due to increased funding, HSPLS has slowly been able to fix many structures. Aldrich highlighted that for the upcoming year, HSPLS plans to use its funding for roof repairs. She added that increasing funding would help HSLPLS to determine appropriate land and begin planning for a new library that would collapse Keaau and Mountain View Library into one location. Funding also allows HSPLS to do miscellaneous work at Wahiawa Library. She noted that HSPLS also received funding for land acquisition for Waikoloa Library. She noted that Waikoloa has a Friends of the Library group but no public library. She added that the Legislature provided HSPLS with funding to purchase land to build a library.

Aldrich reviewed current issues that HSPLS is facing. She detailed that a flash flood destroyed flooring at Aina Haina Public Library. HSPLS is in the process of replacing flooring and painting. She added that earthquakes affected Hilo, Mountain View, Kealakekua, and Naalehu Libraries, including cracks and minor damage. She stated that HSPLS is waiting to do repairs because earthquakes are still occurring. She noted that the libraries did not experience major structural damage.

Aldrich reviewed new libraries. She stated that HSPLS is planning to complete Waikoloa Library by its 2022 target date. She stated that in the Puna region, HSPLS is replacing Pahoa Library, which is a current public and school library. HSPLS is also replacing and consolidating current Keaau and Mountain View public and school libraries. Aldrich detailed that Makiki has been a community-run volunteer library, and HSPLS is attempting to find ways in which it could take over. She noted that HSPLS has been in discussion with the City and County regarding space, leasing, and processes it would have to work through with the Department of Land and Natural Resources. Aldrich highlighted that HSPLS has plans and design money for Makiki.

Aldrich reviewed next steps for HSPLS. She detailed that HSPLS has never employed a sole individual to manage all HSPLS buildings and projects. She highlighted that HSPLS recently created this position and is waiting to receive results of individuals who applied. Aldrich detailed that HSPLS is developing a five-to-ten-year plan for new buildings and services. HSPLS is also reviewing ways in which it could rethink spaces and reboot current libraries, including Hawaii State Library, the Library for the Blind and Physically Handicapped, and McCully Public Library. Aldrich highlighted that HSPLS is reviewing how it could create more usable spaces for the Library for the Blind and Physically Handicapped. She noted that HSPLS is reviewing how it could refresh communities by refreshing libraries rather than focusing on one issue at a time. She highlighted that the Legislature passed Senate Bill 2919, which establishes a pilot project to use HSPLS spaces and land to generate revenue to support facilities, and she noted that HSLPS is in the process of implementing this pilot project. It is looking to develop plans around spaces and partnerships that would benefit the community that might provide opportunities for HSPLS to generate revenue from partners using HSPLS’s resources and land.

Committee Member Bruce Voss inquired about HSPLS’s long-term plans to refresh older libraries, such as Kailua Public Library, Kaneohe Public Library, and Pearl City Public Library. Aldrich confirmed that these libraries are on HSPLS’s list of libraries to reboot. She noted that HSPLS is beginning with McCully Public Library because there are other issues concerning McCully Public Library, and a reboot could resolve those issues. Aldrich highlighted that space redesign could encourage individuals to not participate in certain activities in particular spaces. She added that patrons take care of refreshed spaces. Aldrich stated that once HSPLS hires an individual to manage all of its buildings and projects, this employee will review HSPLS’s five-year plan and determine which buildings it should prioritize. She highlighted that HSPLS is hoping to work with the University of Hawaii’s School of Architecture to review drawings and concepts of spaces. Once HSPLS determines how to redesign spaces, it can work with the Legislature and local donors to improve its spaces.

Amy Kunz, Senior Assistant Superintendent and Chief Financial Officer, Office of Fiscal Services, reviewed the Department of Education’s (“Department”) supplemental budget request for Fiscal Year (“FY”) 2018-2019 pertaining to Legislative conference committee decisions and next steps. She highlighted that the Department worked closely with both the House and Senate Committees on Education and the Senate Committee on Ways and Means.

Kunz reviewed a listing of the Department’s different EDN program identifiers within its budget program. She detailed that EDN 100 is school-based budgeting, EDN 150 is special education and student support services, EDN 400 is school support, and EDN 700 is early learning. Kunz further detailed a comparison summary of operating budget request totals by EDN for general funds and all means of finance. She noted that all means of finance for federal, special, and trust funds are at ceilings. Kunz stated that the Department is not receiving all revenue amounts, but it could receive the amounts it could expend to the ceiling.

Kunz reviewed House Bill (“HB”) 1900 general fund operating budget request for FY 2018-2019. She detailed budget requests, the base budget, Board-approved requests, HB 1900 Conference Draft (“CD”) 1, and differences between HB 1900 CD 1 and Board of Education (“Board”) requests. She highlighted non-recurring items and detailed the importance of the Department implementing funding quickly within the upcoming fiscal year, noting that funds may not continue the following year. Kunz detailed funding for English learners and early college and noted that it is difficult for the Department to implement funding for programs with fidelity within a year without the knowledge of what will happen afterwards if funds are legislatively marked as nonrecurring. She stated that these programs might come up in the Department’s biennium budget request. Kunz stated that the Board requested in total $69.5 million, and the Legislature approved $24.1 million. She noted that within EDN 400, there is a shift in accounting for CIP project staff. She stated that the Legislature added 66 permanent positions and $4.7 million in funds for CIP project staff costs. Kunz noted that the Department is moving funds to operating costs. She added that other state departments are doing so, as well. Kunz detailed a change in accounting included in the $24.1 million incremental operating budget that the Department received.

Kunz reviewed Board-approved requests that the Legislature did not fully fund or short-funded. She reviewed variances between the Board’s requests and detailed that the Legislature either appropriated zero funds or short-funded requests. Kunz stated that some of the requests that the Legislature either did not fund or short-funded are included the Department’s priority needs.

Kunz reviewed the general fund operating budget grant-in-aid (“GIA”) list for FY 2019, including legislative add-ons for GIA. She noted that the total GIA amount is $1.4 million. Kunz also reviewed the HB 1900 CD 1 Committee Report, including an overview and excerpts pertaining to the Department, libraries, charter schools, and CIP appropriations.

Kunz detailed legislative provisos for the Department and noted that one of the provisos includes amendments to the Time Warner trust fund, also known as the Charter Communications trust fund. She detailed that the Legislature transferred the sum of $7.9 million to the Department and provided specific instructions on how the Department is to expend these funds. Kunz further highlighted a historical triad between the Department, the University of Hawaii, and the Office of Enterprise Technology Services. She stated that the Department is reviewing how to implement funding.

Kunz reviewed CIP fund requests for FY 2019, including Board approved requests, executive requests, and conference drafts. She stated that the Department asked the Legislature for $784.5 million and received $350 million. She highlighted that the Department received a greater proportional share of the CIP budget for education, which makes her believe that the Legislature understands that the Department has needs and is helping the Department to ensure it is meeting its needs. Kunz detailed that the Department received $124.5 million out of $350 million for lump sum program supports statewide. She noted that other items in the CIP fund request for FY 2019 are specific legislative add-ons for specific projects.

Kunz reviewed bills with direct fiscal impact to the Department’s budget aside from HB 1900 CD 1. She detailed that HB 2025 CD 1, relating to resource recovery, authorizes the Department to issue grants to establish a composting grant pilot project in Department schools. It also authorizes a composting grant pilot project working group, requires the Department to report to the Legislature, and appropriates $300,000. HB 2607 CD 1, relating to education, requires the Department to develop and implement a statewide computer science curricula plan for public school students in kindergarten through twelfth grade that may include design thinking as part of the curricula and ensure each public high school offers at least one computer science course each school year. It authorizes the Department to contract for computer science teacher development programs and appropriates $500,000. She added that these appropriations are separate and not reflected in the budget bill.

Committee Member De Lima expressed concern over the funding the Department received from the Legislature for alternative learning centers. He stated that alternative learning centers serve as an important component for struggling students. He asked how the Department plans to task these projects. Kunz explained that the first proviso section requires the Department to expend a sum of $670,830 for FY 2018-2019 to establish a new alternative learning center in the Waianae Complex. Committee Member De Lima asked if the Department needs to use this sum out of the $4 million appropriated by the Legislature toward an alternative learning center in the Waianae complex. Kunz confirmed that it does. She noted that there are other appropriations for current alternative learning centers. She added that the Department is meeting with Legislators to discuss this topic. Committee Member De Lima asked if the Department already has this additional funding and whether alternative learning centers are part of the Department’s programs. Kunz confirmed that alternative learning centers are part of the Department and that the Department has the funding.

Committee Member De Lima stated that he would like the Department to present on alternative learning centers in an upcoming meeting. He stated that he wants to ensure that the Department is maximizing funding to meet objectives and broadening its mission to help as many struggling students as possible. He noted that the Department should take advantage of appropriations in ways it has not contemplated before because the Legislature appropriated a large amount of funding. Kunz elaborated that the Department is meeting with a Legislator who was instrumental in including these appropriations in order to gain an understanding regarding legislative intent. Committee Member De Lima stated that he believes the intent of the Legislature is to appropriate more funding for this program. He detailed that the Department needs to meet the objectives of educational needs to programmatically assist students in academics and careers. He reiterated that the Department needs to take advantage of the funding and review results of its efforts. Committee Member De Lima suggested that the Department expand opportunities for students and emphasized the importance of not wasting the opportunity that the Legislature provided simply because it did not ask for this funding. He noted that the Department asked for $10 million for its English learner services but did not receive it. It did not ask for $4.5 million for alternative learning centers, but the Legislature provided this funding. He reiterated that this is a large sum of money, and the Department needs to take advantage of this funding.

Committee Member Voss expressed disappointment over receiving funding for which it did not ask and noted that the Board’s budget request was $69 million but received less than $14 million in a year when tax revenues and budgets were positive. He stated that he appreciates the funding received for CIP but noted that students were short-changed at the Legislature. Committee Member Voss expressed concern over special education teacher differentials and noted that the Department requested $10.3 million for ten additional days for special education teachers. He detailed that he was aware that the Department would not realistically receive $10 million, but he did not expect that it would receive zero. He asked if the Legislature explained why it appropriated zero for one of the Department’s areas of greatest need. Kunz stated that the Legislature did not explain, but the Department did not specifically ask. Committee Member Voss stated that special education remains as one of the Department’s greatest needs. He noted that one of the special education taskforce’s ideas is to increase time for individuals involved in the individualized education program process and special education services, but the Department received a zero increase at the Legislature. He commented that the difference is striking.

Committee Member Voss expressed concern that the Department requested $3 or $4 million for R&M to cover increased costs but received zero funding. He asked if the Legislature provided an explanation for this. Kunz stated that it did not. Committee Member Voss stated that the Department requested funding for a number of categories of need, but the Legislature responded with zero funding. He noted that there is a difference of opinion regarding Weighted Student Formula (“WSF”), and some legislators believe that WSF needs to be reviewed. He stated that he understands why it did not fund $26 million in these areas. However, in regards to items of need, he does not understand how the Department received zero funding and asked if the Department has any idea as to how this happened. Kunz stated that the Department is part of a larger pot of total state funds and tries to justify as best it can and receive as much funding from the pot as it can. She noted that a question regarding generating tax revenue for education to provide an incremental source of funds for the Department will be on the next election ballot. She added that there are not enough general excise taxes for every department in the State, and there is more need than there is money available for departments. Committee Member Voss stated that his concerns are not a criticism of Department staff. He noted that many initiatives received funding, but the students in Hawaii did not receive much.

Christina Kishimoto, Superintendent, stated that there is an opportunity during the next legislative session for the Board and Department to review how they could communicate their highest priorities in a documented form to which they could refer. She noted that the Department referred to the Board and Department Joint Strategic Plan (“Strategic Plan”) and closing the achievement gap as priorities. She stated that the Department was strategic and public in its approach and priorities. Conversations at the legislative level forced the Department to work as a team and spend time reviewing its initiatives. Conversation and time the Department spent on applied behavior analysis services was time well spent. Other conversations revolved around initiatives that the Department does not consider priorities. She noted that there is a push and pull between the Board and the Legislature regarding how funds are determined at the Board level or legislative level in term of line-item priorities. She detailed that everyone in the state discusses empowerment at the principal and complex levels. Kishimoto highlighted that the Department forced conversations to shift, and it needs to strategize around the discussions that are happening.

Committee Member Voss stated that if the Board needs to be more active during the following legislative session, particularly for English learner and special education initiatives, then it needs to do so. He stated that the Board cannot have another legislative session next year like it had this year.

Committee Member De Lima commented on alternative learning centers and stated that the Department needs to think outside of the box and spend funding in a way that provides the Waianae Complex with resources. Committee Member De Lima emphasized that the idea of an alternative learning center is to help students who are alienated and struggling. He stated that the Department needs to establish a pilot with the funding it received to help all struggling students in the Waianae Complex. He added that the Department does not need to replicate its core program or replicate other programs that the Legislature additionally funded. Committee Member De Lima added that the achievement gap in the Waianae Complex is one of the larger achievement gaps in the state. The Department should try to leverage this funding to make a difference in the achievement gap.

Committee Member De Lima commented on the Charter Communications trust fund and stated that the Department needs to think outside of the box regarding how it will take advantage of these funds. He stated that he would like to receive a presentation on how the Department will utilize this funding.

Kunz reviewed the Department’s fiscal reports as of March 31, 2018, and detailed that comparisons to the prior year are in line with expenditure levels for FY 2017. She detailed that the Department is monitoring FY 2018 year-to-date actual expenditures as compared to three-quarters of the allocations. As of March 31, 2018, the Department is still under the $2.4 million restriction, which the Governor has released to assist the Department with emergencies, flooding on Kauai, and expenditures. She noted that the Department is tapping into the same level of funding for issues happening on Hawaii Island. Kunz stated that the quickest way for the Department to receive funding was to approach the Department of Budget and Finance and the Governor and ask for a release of restrictions to deal with emergency issues. She noted that the Governor released the full restriction this year.

Kunz detailed that as of March 31, 2018, the Department had system issues in posting payroll in March, which delayed reviews of carryover amounts. She added that the Department was several weeks late in closing the month of March and is attempting to catch up as it reaches the end of the fiscal year. In February, the Department had conversations with Complex Area Superintendents (“CAS”) and provided status reports for schools regarding EDN 100 carryover levels. Kunz detailed that CASs are aware of these levels, utilizing WSF funding for this year’s students, and not having large carryovers. She noted that the Department would continue to monitor.

Kunz stated that the school food service report shows a balance of operating capital of approximately 2.3 months. She emphasized the importance of the Department maintaining these balances to sustain the service of breakfast and lunch to all students in case of a federal government shutdown or other emergency that could delay the U.S. Department of Agriculture reimbursement related to free and reduced lunch. Kunz stated that the Department added two additional footnotes to its report, as requested, which cite the allowable use of funds and cash reserve balances.

Kunz reviewed the student transportation report and noted that the Department encumbered full contracts FY 2018. She detailed that the Department noted that it identified a projected net excess of $500,000 in the previous month. Through further analysis, the Department determined that most of this balance relates to payroll, which should exhaust the unencumbered balance. Kunz stated that in regards to future transportation costs, the Department has contracts in place to ensure that it has enough funding. She further detailed that the Department is ensuring that it does not have a large excess, has enough funding to deal with a flat budget, and incremental changes are built into contracts.

Kunz reviewed the utilities expenditure and electricity consumption report and noted that the Department is monitoring the utilities category. She stated that the Department projects electricity expenditures to be approximately $1.4 million below last year, partially due to the energy rebates the Department collected for the replacement LED bulbs. She detailed that alternative energy cost, gas, water, and sewer could be approximately $4.5 million above last year. With the total appropriation approximately $1.5 million above last year, the utilities category could finish approximately $1.6 million over the appropriated amount. Kunz stated that electricity kilowatt-per-hour usage is running approximately 8% below last year’s levels. However, the average cost per kilowatt-hour is over one cent higher on average, which is driving the total cost higher. She noted that the Department’s budget needs to cover the future payback of a loan the Department received. The Department is continuing energy efficiency initiatives to gain savings, pay back its loan, and cover overages happening in categories. Kunz stated that the Department continues to leverage alternative energy and is using 52% more kilowatt-hours than last year.

Committee Member De Lima asked if the Department still has a contract in place with the group that provides the Department with alternative energy. Kunz confirmed that it does. Committee Member De Lima stated that he would like to receive an update on this contract in a future meeting.

Kunz reviewed impact aid receipts. She noted that the Department received FY 2018 funds related to survey cards it submitted in September 2016. She stated that the U.S. Department of Education performed “desk audits” on some of the Department’s applications prior to releasing funds. Based on that desk audit, the U.S. Department of Education is holding some of the Department’s funds prior to release. Kunz noted that she hopes impact aid receipts increase in the future as the Department works on its process. She highlighted that the Department increased the amount of survey cards it collected but cards returned incomplete or not federally connected remain flat. However, the Department received additional impact aid support due to the growing amount of appropriations available through impact aid funding. Kunz detailed impact aid turning into vouchers for military students, which could affect impact aid payments and drop the Department 45% from where it is now. She highlighted that the Hawaii congressional delegation is supportive of impact aid rather than vouchers. Kunz stated that the Department continues to watch and monitor this.

Kunz reviewed the facilities development branch quarterly report and noted that this is the time of year where the Department needs to ensure that it encumbers projects by June 30, 2018, so it is not lapsing funds.

Committee Member Voss stated that the Legislature did not appropriate funding for routine maintenance, such as extending the life of air conditioning units. He asked if the Department would be entering into a service contract to extend the life of its air conditioning systems and whether it factored this into the Department’s utilities budget. Kunz explained that these funds would not come from the Department’s utilities budget but from auxiliary service budget to deal with vendor contracts.

Dann Carlson, Assistant Superintendent, Office of School Facilities and Support Services, stated that the Department needs to prioritize funding for maintenance and service contracts when it does not receive funding for these issues. He noted that it is a matter of reprioritizing what it covers in its service and maintenance projects. These priorities may come at the cost of other projects. Committee Member Voss emphasized the importance of the Department extending the life of its air conditioning units after the investment it made. He asked what the Department would cut from its budget in cases of reprioritization. Carlson explained that the Department would need to decrease maintenance. Maintenance is an important priority for the Department, but it would need to decrease service projects.

Committee Vice Chairperson Nolan Kawano commented on nonrecurring appropriations and asked if the Department could add these items to its quarterly report. He noted that it has recurring items in its reports, but he would like to review an outline of nonrecurring appropriations and expenditures. Kunz asked if Committee Vice Chairperson Kawano would like to the Department to add legislative add-ons to its reports. Committee Vice Chairperson Kawano confirmed that he would like to review balances. He stated that this would help ensure that the Department is taking advantage of its appropriated funding.

Committee Member De Lima commented that the Legislature has the authority to allocate funding but does not have the authority to direct the Board, and the Board has the constitutional authority to determine how it uses funding. He noted that these matters are not legislative decisions. Committee Member De Lima stated that the Legislature and state agencies have good intentions, and the Department needs to take advantage of opportunities the Legislature offered. He added that he is hopeful that the Department will receive what it needs in the future.

Kunz stated that at the last Committee meeting, the Department presented a detailed report regarding its carryover funding and how it is using carryover funding this fiscal year. The Department attempted to create a summary and educational report to present a better picture of what is occurring. The Department outlined and condensed what generates carryover funds, allowable use, reasons why the Department has carryover funds, which carryover funds by EDN are going into FY 2017, and data analysis on comparisons of carryover funds. She stated that the Department is planning how to prioritize carryover funds for FY 2018 and potential carryover for FY 2019. Kunz noted that the Department views carryover funding as nonrecurring in nature, although it may seem as though the Department has carryover funding each year. It is not realistic for the Department to expend every dollar due to its size, complexity, and variety of programs. She stated that the Department is being thoughtful in how it spends and prioritizes. Kunz added that the Legislature is appropriating funds for items that are nonrecurring, which creates problems as the Department reviews how to implement funding for a year and determines whether to stop a program or prioritize carryover funds for a program to ensure that it continues. Kunz stated that due to the Legislature funding several nonrecurring items for FY 2019, this might shift the conversation as the Department enters FY 2020. She detailed that salary projections are updated every two years and noted that this could change what carryover funds look like because the Department will have a clearer understanding as it enters the biennium due to updates.

Kishimoto emphasized the importance of the Department creating financial reports in order to help the public understand terminology, how the Department structures its budget, and important components of the Department’s budget, such as how the Department generates its budget. She noted that the Department is being fiscally prudent. She stated that the Department explains what fiscally prudent means in its report and ties it into its strategic work. Kishimoto detailed that the Department discusses new priorities and funding priorities that are not funded with carryover funding each year. The Department’s availability to cover priority areas is based on its availability of carryover funds. Kishimoto stated that the Department could provide the Committee with periodic updates regarding its carryover priorities. Kishimoto highlighted that the Department is in the midst of establishing processes and noted that the finance team is supporting the Department’s processes. She stated that the Department is reviewing its current year’s budget, proposals, and encumbrances. It is also being purposeful in tying its budget to the Strategic Plan. She stated that the Department’s financial review identified areas that are underfunded and areas that are overfunded. The Department is reviewing priority areas and is reviewing its ability to carryover funds within the 5% that is allowable. She noted that the Department is trying not to spend down funds that it could reallocate toward special education and English learner services. Kishimoto highlighted that the Department is being purposeful in its review of its budget and is reviewing where it could maximize funding from the state level to the school level to ensure empowerment.

Committee Member De Lima commented that the Department’s report indicates that the state and complex areas are allowed to offset deficits. He stated that he does not like the thought that the Department is incurring deficits due to the knowledge that it will have carryover funds. He asked if the Department is authorizing deficits since it has carryover funds each year and noted that this is a bad practice. Kunz agreed that it is bad practice and stated that this rarely occurs. She noted that as part of the biennium, the Department could try more trade-off transfers with the Legislature. If deficits are happening on an annual basis, the Department could review funding in areas where deficits are occurring and realign these budgets. Committee Member De Lima stated that authorizing deficits and allowing carryover funding to cover them sends the wrong message to complex areas and state offices. He stated that he would like the Department to redo its message because it is wrong for the Department to function in this way. He noted that there are exceptions and justifications, and the Department should deal with exceptions, but it should not make it practice.

Committee Member De Lima commented that the Department requested appropriations for workers’ compensation because it anticipated shortfalls but did not receive funding from the Legislature. He stated that the Department should shut down benefits once funds are exhausted. Committee Member De Lima noted that the Legislature made its decision and directive, and the Department should follow the Legislature’s direction. Kunz explained that this would expose the Department to legal liabilities and employees would not return to work in a timely manner because rehabilitation would stop. Committee Member De Lima stated that the Governor released the full restriction. He noted that if the Department did not receive necessary appropriations to meet legal requirements, then that is a directive from the Legislature to stop services once funds are exhausted.

Committee Member De Lima expressed appreciation for the Department’s work in outlining priorities. He stated that he agrees that the Department needs to earmark funding for priorities. Committee Member De Lima detailed his concerns for families and noted that the Department suffered losses in real needs for students. He expressed appreciation for the Superintendent’s taskforces and noted that the Department’s objective is to determine how to spend funding in a way that helps students. He stated that he wants to spend funding on needs rather than saving money. Committee Member De Lima commented that in some cases, it is not a matter of funding but of how the Department delivers services.

Committee Member Voss commented that the Department’s largest carryover category is EDN 100, which is primarily WSF. Statute allows schools to retain these funds at the school level. Committee Member Voss expressed concern that schools are in a cycle of holding on to funds for future needs, but once these funds become large, it becomes an excuse for the Legislature not to fund certain programs. He stated that he does not want schools to waste funding but asked how the Department is encouraging schools to make a better effort to expend WSF funding in the year that the Department appropriates this funding.

Kunz explained that there are reasons carryover funds in WSF increased in FY 2017. She stated that the Department is monitoring these funds this year. She detailed prioritized salary savings accumulating in EDN 100 and impact aid funding and further detailed how schools received funding in one year that they had not planned on receiving. Kunz further detailed timing and schools not knowing when they would receive funding. Kunz noted that the Department provided CASs the percentage of funding used in schools and detailed that CASs had conversations with principals to review plans and ensure that schools are thoughtfully expending funding. Kunz stated that the Department receives comments that its carryover funding is larger than other branches, and it does not want to abuse its power. She highlighted that the Department is educating principals so that principals are aware of what is available.

Committee Member Voss emphasized the importance of perception. He asked how close to the end of the fiscal year schools spend their WSF funding. He asked if schools spend these funds within the first three or six months of the year or at the end of the fiscal year. Kunz detailed that there is a requirement that schools need to spend WSF carryover by December 31. She stated that schools use carryover first. The Department uses processes to clear carryover and then writes checks through the end of January. She further explained requirements for submittals and length of time schools have to spend funding. She stated that the Department needs to employ targeted initiatives at the school level to deal with achievement gaps and to service students. Kunz stated that the Department could boost its efforts.

Kishimoto stated that the Department needs to get better at expending the bulk of funds at the school level within the first half of the school year. She noted that this is more of the typical national process. She detailed that in terms of WSF, the Department needs to get better at expending funds for targeted areas, such as special education and English learner services. She stated that the Department is reviewing how to set up a system for the following year so that it could provide schools with feedback. She highlighted that the Department needs to engage in next level work. It needs to be supportive while providing feedback and establishing a system.

Committee Vice Chairperson Kawano stated that carryover funding will always have a negative perception. He stated that the Department would always have situations where schools and offices do not fund areas due to carryover funding. He suggested that the Department should have 5% of discretionary funds in its balance every year rather than carryover funds. He stated that the Department would always have balances but could minimize the negatives resulting from carryover funding.

Carlson stated that the Department’s intent is to initiate an impact fee for the Kalihi to Ala Moana impact fee district on July 1, 2018. He noted that the impact fee has not changed from when the Department previously briefed the Committee. He highlighted that the Department received concurrence from the Department of the Attorney General in regards to questions the Committee had regarding the Department’s authority to use new standards it developed through Board policy to develop its impact fee amount. He stated that the Department does have this authority. However, there are slight issues that the Department needs to address. Carlson stated that the Department has scheduled a meeting with the City and County of Honolulu’s (“City”) Department of Planning and Permitting (“DPP”) because DPP needs to implement the impact fee and procedures. He highlighted that the Department has been in dialogue with DPP, and the Department’s intent following the meeting is to cement communication and ensure that there is a concerted effort in communicating that impact fees will begin on July 1, 2018. He added that the Department has also been in dialogue with the development community, and the development community is aware of what the Department is initiating. Carlson noted that the Department has made an effort to communicate through a number of venues. He detailed that the Department is currently addressing issues regarding a potential agreement between the Department and developers to have developers build a school to alleviate impact fees in that area.

Committee Member Voss asked if DPP collects impact fees during the building permit stage. Carlson explained that DPP collects the amount per unit once a developer pulls a permit. Committee Member Voss detailed that the City is not a big supporter of this impact fee for a number of reasons. He asked how the Department could ensure that developers pay the fee before DPP issues a permit. Carlson explained that he is not a technical expert on how the collection system has worked. He further explained that no developer is able to receive a permit unless it pays the fee. Carlson detailed that the Department collects its impact fee money from the City and noted that it has a small staff that ensures it receives its collections on a monthly basis.

Committee Member Voss stated that developers pay the fee to the City and not to the State and then the Department pulls funds from the City. He stated that the Department needs to determine the logistics of how it would ensure that the fee is paid.

Kenneth Masden, Public Works Manager, Planning Section, Facilities Development Branch, Office of School Facilities and Support Services, explained that when a developer pulls a permit for a single family unit or for a single unit, letters are sent communicating that the Department needs to be contacted and the fee satisfied prior to permit issuance. He detailed staff tracking permits and systems indicating whether developers have paid fees or not. Masden noted that if a developer is building more than 50 units in one project, the Department meets with them and develops an agreement based on certain requirements.

Carlson explained that at the previous Committee meeting, the Committee narrowed down the Department’s selection of sites to seven sites. The Department’s current initiative is to narrow its sites from seven to three in order to begin due diligence. He highlighted that the Department has had a number of different meetings to discuss issues with the development community. Carlson stated that the Department has also engaged in discussions with legislators and highlighted Senate Bill (“SB”) 2237, relating to public schools, which requires the City to transfer to the Department all property upon which a public elementary or intermediate school is situated. Carlson detailed that this gives the Department power to acquire and hold title to real, personal, or mixed property for use for public educational purposes. It also requires legislative approval prior to the sale or gift of lands to which the Department holds title. He compared and contrasted SB 2237 with HB 116, relating to public schools, and noted that HB 116 required the City to transfer to the Department of Land and Natural Resources all property upon which certain public high schools are situated. Carlson detailed that the Department is working with a consultant in order to receive assistance. He noted that the Department currently does not have the expertise to execute narrowing down seven sites to three.

Committee Vice Chairperson Kawano asked if the Department is seeing progress with SB 2237. Carlson confirmed that it is.


V. Adjournment

Committee Vice Chairperson Kawano adjourned the meeting at 4:24 p.m.