Report Title:

Board of Education Autonomy; Taxing Authority

Description:

Provides for constitutional amendment making the department of education a political subdivision headed by the board of education, places the income tax under the board, and gives the board the authority to enact a retail sales tax.

 

THE SENATE

S.B. NO.

793

TWENTY-SECOND LEGISLATURE, 2003

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO EDUCATION.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

PART. I

SECTION 1. The provision of quality education for the children of Hawaii remains a priority of the State. All interested parties must work together to guarantee that our children have the right tools and a safe learning environment to enable them to become educated, productive individuals. An educated citizenry and skilled workforce are key components of any society, but are especially crucial when a society needs to reestablish its economic vitality.

In recent years, Hawaii's public education system has undergone numerous changes, yet the public perception is that graduation from a public high school in Hawaii does not guarantee an educated citizen nor a skilled worker. Currently, the education system has goals, objectives, and performance standards, but few assessments and little acceptance of responsibility for improving on student performance. Each year, we read of pronouncements by the department of education that it is on the right track, yet the reading scores of Hawaii's students remain among the lowest in the nation.

The board of education and the department of education clamor for increased levels of funding, advancing the perception that the legislature is providing insufficient funds to the department of education, and holding the legislature responsible for the inefficiencies and ineffectiveness of the educational system. While it is presently the responsibility of the legislature to provide funds to the department of education, it is incumbent upon the legislature to balance the needs of the State against limited resources. Even under these circumstances, the legislature has increased the department of education's budget to a level that represents more than one-third of the general fund budget. In addition, all governors have attempted to preserve the department of education's budget to the detriment of other programs of state government.

It is obvious that the State is at a crossroads with regard to education. The debate is no longer solely a funding issue, it is an issue of responsibility and accountability for the delivery of a public education system that assures that every child will be competent in the basic requirements of society.

It is time to support a concept that provides for a dedicated source of funding for education. Providing the department with a separate means of financing would guarantee the availability of resources necessary to provide quality educational opportunities, both for students and teachers.

Through this Act, the legislature seeks to reform the governance of a statewide education system by delineating clear lines of authority and responsibility in all fiscal matters, policy issues, and managerial oversight. This Act makes the department of education a political subdivision headed by the board of education separate and apart from state government but subject to the general laws of the State.

In order to finance this new political subdivision, the department of education is given control over the income tax and is allowed to adopt a retail sales tax. The department will be fiscally responsible for its revenues and therefore will be responsible for raising them in the amounts necessary as well as expending those amounts in a manner desired by the public for the benefit of the educational system.

Through this systemic change, the legislature believes that existing resources will be utilized more efficiently and effectively. The department of education will be solely and directly accountable to the public, with regard to performance, expenditure, and increases in taxes to fund the system. The legislature notes that many school districts on the mainland have their own taxing power and the legislature believes that with this authority, the department of education will be more accountable and responsive to the public that pays the taxes.

It is the intent of the legislature to achieve these objectives by providing appropriate legal authority to the board of education to manage and fund an autonomous statewide public school system.

PART. II

SECTION 2. Article X of the Constitution of the State of Hawaii is amended by adding three new sections to read as follows:

"DEPARTMENT OF EDUCATION; POLITICAL SUBDIVISION; BONDS

Section 1.4. The department of education shall be a political subdivision headed by the board of education, which shall enact ordinances and govern the political subdivision in a manner similar to other political subdivisions of the State. The department shall have all of the functions, powers and duties necessary to provide for the establishment, support and control of the statewide system of public education, except police powers. The department of education shall be separate and apart from the rest of state government but shall be subject to general law.

The department of education may issue general obligation bonds for the payment of the principle and interest of which the full faith and credit of the department is pledged and, unless otherwise indicated, includes reimbursable general obligation bonds. All bonds and other instruments of indebtedness issued by the department of education shall be subject to Article VII, sections 12 and 13. For the purposes of determining the department's debt ceiling, the department of education shall follow the provisions of Article VII, section 13. Fees, payments, income, excluding federal funds, and income tax and retail sales tax revenues shall be considered general fund revenues of the department. The department of education shall be responsible for the payment of all principle and interest on general obligation bonds issued by the State and outstanding for the direct benefit of the public school system on the effective date of this section.

POWERS OF TAXATION

Section 3.4. The department of education shall exercise all functions, powers and duties relating to the taxation of income, except as to pension, social security, and corporate income which shall be exempt from the department's powers. The income tax shall be assessed, levied and collected as provided in Article VII, section 2 and Article XVIII, section 7.1.

The department of education shall exercise all functions, powers and duties relating to a retail sales tax. The retail sales tax shall be limited to the retail sale of tangible personal property and shall not exceed one cent on each one dollar of retail sales value. The adoption of a retail sales tax and the establishment or change in the tax rate shall require a two-thirds vote of the members to which the board of education is entitled.

STATEWIDE LAWS

Section 7. This article shall not limit the power of the legislature to enact laws of statewide concern."

SECTION 3. Article XVIII of the Constitution of the State of Hawaii is amended by adding a new section to read as follows:

"DEPARTMENT OF EDUCATION; POLITICAL SUBDIVISION

Section 7.1. The amendments made to Article VII, sections 2, 7, and 10, Article VIII, section 3, and Article X, changing the functions, powers and duties of the board of education and making the department a political subdivision shall take effect on July 1, 2005.

No change in income tax rates shall be made before July 1, 2007, and no changes shall be made to deductions, exemptions or tax credits, except those made to the Internal Revenue Code and adopted by the board, before July 1, 2008; provided that increases in those deductions, exemptions or tax credits, or the addition of new and further deductions, exemptions, or tax credits may be established by ordinance by the board of education.

The department of education shall contract with the department in the executive branch responsible for collecting taxes to collect income taxes for the board until July 1, 2012. The executive department shall be reimbursed for direct and indirect costs in collecting income tax revenues for the board."

SECTION 4. Article VII, section 2, of the Constitution of the State of Hawaii is amended to read as follows:

"INCOME TAXATION

Section 2. In enacting any law or adopting any ordinance imposing a tax on or measured by income, the legislature may and board of education shall define income by reference to provisions of the laws of the United States as they may be or become effective at any time or from time to time, whether retrospective or prospective in their operation. The legislature and the board of education may provide that amendments to such laws of the United States shall become the law of the State or be adopted as an ordinance upon their becoming the law of the United States. The legislature and the board of education shall in any such law or ordinance, set the rate or rates of such tax[.]; provided that a two-thirds vote of the members to which the board of education is entitled shall be required to set or change the rate or rates of tax. The legislature and the board of education may in so defining income make exceptions, additions or modifications to any provisions of the laws of the United States so referred to and provide for retrospective exceptions or modifications to those provisions which are retrospective."

SECTION 5. Article VII, section 7, of the Constitution of the State of Hawaii is amended to read as follows:

"COUNCIL ON REVENUES

Section 7. There shall be established by law a council on revenues, which shall prepare revenue estimates of the state government, except the department of education, and shall report the estimates to the governor and the legislature at times provided by law. The estimates shall be considered by the governor in preparing the budget, recommending appropriations and revenues and controlling expenditures. The estimates shall be considered by the legislature in appropriating funds and enacting revenue measures. All revenue estimates submitted by the council to the governor and the legislature shall be made public. If the legislature in appropriating funds or if the governor in preparing the budget or recommending appropriations exceeds estimated revenues due to proposed expenditures, this fact shall be made public including the reasons therefor.

The council on revenues shall also prepare revenue estimates of the department of education, and shall report the estimates to the board of education at times provided by law. The estimates shall be considered by the board of education in preparing its budget, recommending its appropriations and revenues and controlling its expenditures. All revenue estimates submitted by the council to the board of education shall be made public. If the board of education in preparing the budget or recommending expenditures exceeds estimated revenues due to proposed expenditures, this fact shall be made public including the reasons therefor."

SECTION 6. Article VII, section 10, of the Constitution of the State of Hawaii is amended to read as follows:

"AUDITOR

Section 10. The legislature, by a majority vote of each house in joint session, shall appoint an auditor who shall serve for a period of eight years and thereafter until a successor shall have been appointed. The legislature, by a two-thirds vote of the members in joint session, may remove the auditor from office at any time for cause. It shall be the duty of the auditor to conduct post-audits of the transactions, accounts, programs and performance of all departments, offices and agencies of the State, the department of education and [its] political subdivisions[,] of the State, certify to the accuracy of all financial statements issued by the respective accounting officers and to report the auditor's findings and recommendations to the governor [and], to the legislature and to the board of education at such times as shall be provided by law. The auditor shall also make such additional reports and conduct such other investigations as may be directed by the legislature."

SECTION 7. Article VIII, section 3, of the Constitution of the State of Hawaii is amended to read as follows:

"TAXATION AND FINANCE

Section 3. The taxing power shall be reserved to the State, except so much thereof as may be delegated by the legislature to the political subdivisions, except the income tax and retail sales tax given to the department of education under Article X, section 3.4, and except that all functions, powers and duties relating to the taxation of real property shall be exercised exclusively by the counties, with the exception of the county of Kalawao. The legislature shall have the power to apportion state revenues among the several political subdivisions."

SECTION 8. Article X, section 2, of the Constitution of the State of Hawaii is amended to read as follows:

"BOARD OF EDUCATION

Section 2. There shall be a board of education composed of members who shall be elected in a nonpartisan manner by qualified voters, as provided by [law,] ordinance of the board of education, from two at-large school board districts. The first school board district shall be comprised of the island of Oahu and all other islands not specifically enumerated. The second school board district shall be comprised of the islands of Hawaii, Maui, Lanai, Molokai, Kahoolawe, Kauai and Niihau. Each at-large school board district shall be divided into departmental school districts, as may be provided by [law.] ordinance of the board of education. There shall be at least one member residing in each departmental school district. The Hawaii State Student Council shall select a public high school student to serve as a nonvoting member on the board of education."

SECTION 9. Article X, section 3, of the Constitution of the State of Hawaii is amended to read as follows:

"POWER OF THE BOARD OF EDUCATION;

GENERAL FUND EXPENDITURE CEILING

Section 3. The board of education shall have the power[, as provided by law,] to formulate statewide educational policy and appoint the superintendent of education as the chief executive officer of the public school system. The board of education shall have jurisdiction over the internal organization and management of the department of education and the public school system and shall exercise its jurisdiction in a manner consistent with general laws.

GENERAL FUND EXPENDITURE CEILING

Notwithstanding any other provision to the contrary, the board of education shall establish a general fund expenditure ceiling which shall limit the rate of growth of general fund appropriations, excluding federal funds received by the general fund of the department of education, to the estimated rate of growth of the State's economy as provided by law. No appropriations by the department in excess of this ceiling shall be authorized by the board of education unless the board of education shall, by a two-thirds vote of the members to which the board of education is entitled, set forth the dollar amount and the rate by which the ceiling will be exceeded and the reasons therefor."

SECTION 10. The question to be printed on the ballot shall be as follows:

"Shall the board of education be granted complete authority over the income tax and be allowed to impose a retail sales tax and its powers, functions, and duties to manage and control the public school and public library system, be independent of legislative and gubernatorial review so that the department of education is a political subdivision?"

SECTION 11. Constitutional material to be repealed is bracketed. New constitutional material is underscored.

SECTION 12. Constitutional amendments made to Article VII, Article VIII, Article X, and Article XVIII in this Part shall take effect upon compliance with Article XVII, section 3, of the Constitution of the State of Hawaii.

PART III

SECTION 13. Section 26-4, Hawaii Revised Statutes, is amended to read as follows:

"§26-4 Structure of government. Under the supervision of the governor, all executive and administrative offices, departments, and instrumentalities of the state government and their respective functions, powers, and duties shall be allocated among and within the following principal departments that are hereby established:

(1) Department of human resources development (Section 26-5)

(2) Department of accounting and general services (Section 26-6)

(3) Department of the attorney general (Section 26-7)

(4) Department of budget and finance (Section 26-8)

(5) Department of commerce and consumer affairs (Section 26-9)

(6) Department of taxation (Section 26-10)

(7) University of Hawaii (Section 26-11)

[(8) Department of education (Section 26-12)

(9)] (8) Department of health (Section 26-13)

[(10)] (9) Department of human services (Section 26-14)

[(11)] (10) Department of land and natural resources (Section 26-15)

[(12)] (11) Department of agriculture (Section 26-16)

[(13)] (12) Department of Hawaiian home lands (Section 26-17)

[(14)] (13) Department of business, economic development, and tourism (Section 26-18)

[(15)] (14) Department of transportation (Section 26-19)

[(16)] (15) Department of labor and industrial relations (Section 26-20)

[(17)] (16) Department of defense (Section 26-21)

[(18)] (17) Department of public safety (Section 26-14.6)"

SECTION 14. Section 37-113.1, Hawaii Revised Statutes, is amended to read as follows:

"§37-113.1 Council on revenues; estimate of total personal income. The council shall prepare an estimate of the total state personal income for the calendar year in progress and, when necessary, for the next succeeding calendar year for which such income has not been determined or published and shall report the estimate and any revision thereto to the director of finance, the governor, the chief justice, the board of education, and the legislature each July 20 and October 20."

SECTION 15. Section 235-119, Hawaii Revised Statutes, is amended to read as follows:

"§235-119 Taxes, state realizations. All corporate income taxes shall be for the use of the State and shall be paid into the state treasury at such times as the director of finance shall direct. All individual income taxes shall be for the use of the board of education. Out of the income tax revenues the director of finance shall retain sufficient amounts to reimburse the State for the costs of assessment, collection, and disposition incurred by the departments of budget and finance and taxation. Amounts retained shall be general fund realizations.

For the purposes of this section, the costs of assessment, collection, and disposition shall include any and all costs, direct or indirect, that are deemed necessary and proper to carry out this chapter."

SECTION 16. Section 237-31, Hawaii Revised Statutes, is amended to read as follows:

"§237-31 Remittances. All remittances of taxes imposed by this chapter shall be made by money, bank draft, check, cashier's check, money order, or certificate of deposit to the office of the department of taxation to which the return was transmitted. The department shall issue its receipts therefor to the taxpayer and shall pay the moneys into the state treasury as a state realization, to be kept and accounted for as provided by law; provided that:

(1) [The sum from all general excise tax revenues realized by the State that represents the difference between $45,000,000 and the proceeds from the sale of any general obligation bonds authorized for that fiscal year for the purposes of the state educational facilities improvement special fund shall be deposited in the state treasury in each fiscal year to the credit of the state educational facilities improvement special fund;

(2)] A sum, not to exceed $5,000,000, from all general excise tax revenues realized by the State shall be deposited in the state treasury in each fiscal year to the credit of the compound interest bond reserve fund; and

[(3)] (2) A sum, not to exceed the amount necessary to meet the obligations of the integrated tax information management systems performance-based contract may be retained and deposited in the state treasury to the credit of the integrated tax information management systems special fund. The sum retained by the director of taxation for deposit to the integrated tax information [[]management[]] systems special fund for each fiscal year shall be limited to amounts appropriated by the legislature. This paragraph shall be repealed on July 1, 2004."

SECTION 17. Section 26-12, Hawaii Revised Statutes, is repealed.

["§26-12 Department of education. The department of education shall be headed by an executive board to be known as the board of education.

Under policies established by the board, the superintendent shall administer programs of education and public instruction throughout the State, including education at the preschool, primary, and secondary school levels, adult education, school library services, health education and instruction (not including dental health treatment transferred to the department of health), and such other programs as may be established by law. The state librarian, under policies established by the board of education, shall be responsible for the administration of programs relating to public library services and transcribing services for the blind.

The functions and authority heretofore exercised by the department of education (except dental health treatment transferred to the department of health), library of Hawaii, Hawaii county library, Maui county library, and the transcribing services program of the bureau of sight conservation and work with the blind, as heretofore constituted are transferred to the public library system established by this chapter.

The management contract between the board of supervisors of the county of Kauai and the Kauai public library association shall be terminated at the earliest time after November 25, 1959, permissible under the terms of the contract and the provisions of this paragraph shall constitute notice of termination, and the functions and authority heretofore exercised by the Kauai county library as heretofore constituted and the Kauai public library association over the public libraries in the county of Kauai shall thereupon be transferred to the public library system established by this chapter.

The management contracts between the trustees of the library of Hawaii and the Friends of the Library of Hawaii, and between the library of Hawaii and the Hilo library and reading room association, shall be terminated at the earliest time after November 25, 1959, permissible under the terms of the contracts, and the provisions of this paragraph shall constitute notice of termination.

Upon the termination of the contracts, the State or the counties shall not enter into any library management contracts with any private association; provided that in providing library services the board of education may enter into contracts approved by the governor for the use of lands, buildings, equipment, and facilities owned by any private association.

Notwithstanding any law to the contrary, the board of education may establish, specify the membership number and quorum requirements for, appoint members to, and disestablish a commission in each county to be known as the library advisory commission, which shall in each case sit in an advisory capacity to the board of education on matters relating to public library services in their respective county."]

SECTION 18. Section 36-32, Hawaii Revised Statutes, is repealed.

["§36-32 State educational facilities improvement special fund. (a) There is created in the treasury of the State the state educational facilities improvement special fund, into which shall be deposited a portion of all general excise tax revenues collected by the department of taxation under section 237-31. The special fund shall be used solely to plan, design, acquire lands for and to construct public school facilities and to provide equipment and technology infrastructure to improve public schools and other facilities under the jurisdiction of the department of education, except public libraries. In addition, activities of the department of education intended to eliminate the gap between the facility needs of schools and available resources shall be eligible for funding from the special fund. Expenditures from the special fund shall be limited to projects authorized by the legislature and shall be subject to sections 37-31, and 37-33 through 37-40. Appropriations or authorizations from the special fund shall be expended by the comptroller.

(b) The department of accounting and general services shall submit an annual report to the legislature, which shall include a financial statement of the special fund and the status of projects undertaken pursuant to this section, no later than twenty days prior to the convening of each regular session."]

SECTION 19. Transition and implementation. The legislature recognizes that while it currently bears the constitutional authority for raising revenues and allocating resources, the successful implementation of school programs that bring about enhanced student outcomes requires unambiguous accountability and authority in taxation, budgeting, expenditure control, and determination of educational needs by the board of education. The legislature also recognizes that providing increased flexibility requires increased accountability. The legislature believes that achieving enhanced assessment and greater accountability requires a fundamental change in the assumptions that govern the educational system. The legislature also believes that consolidating and reorganizing the education programs and related supporting programs at this time of transition of the department of education to a political subdivision will bring greater efficiencies and responsiveness to the educational system. To achieve these objectives, restructuring the governance and processes of the educational system is undertaken by this Act.

The legislature intends that there be an orderly transition period, wherein the board, superintendent, and state librarian begin to implement this restructuring. The interest of the State and its people requires that the transition be accomplished so as to ensure continuity and quality in education programs. Accordingly, it is the intent of the legislature that appropriate planning and actions be authorized and taken to avoid or minimize any disruptions to the educational system and process.

To facilitate the restructuring of the department and the educational system, there is established an educational restructuring and transition committee, consisting of eleven members. Three members shall be members of the board of education, one of whom shall serve as the chairperson. Two members shall be appointed by the governor in accordance with section 26-41, Hawaii Revised Statutes. Two members each shall be appointed by the president of the senate and the speaker of the house of representatives. The superintendent of education and state librarian shall serve as ex officio members. Any vacancy shall be filled by the respective appointing authority.

The committee shall review the structure of the department and make recommendations to the board of education and the legislature on the implementation and transition in governance of the educational system as provided in this Act. Such related functions, programs, and issues as public libraries, school health services, administration, personnel and personnel costs, facilities repair and maintenance, risk management, retirement, health insurance, and collective bargaining, among others, should be addressed. The committee shall facilitate the implementation of this Act by performing the following functions:

(1) Make recommendations on implementation of this Act, including:

(A) How the authority under chapter 38, Hawaii Revised Statutes (deposits of public funds), should be transferred to the board so that the board has all the rights, powers, obligations, and duties with respect to the moneys of the department as the State, director of finance, and governor, respectively, have with respect to moneys of the State under chapter 38, Hawaii Revised Statutes;

(B) Whether title to lands and real property should be transferred to the department with authority in the board of education to sell or otherwise dispose of the lands and real property;

(C) Transfer of the functions of insurance management, central purchasing, funds custody, cash management, and debt management with respect to the educational system to the board;

(D) Transfer of responsibility for the payment of principal and interest on bonds issued by the State for the direct benefit of the public school system;

(E) Transfer of transportation services to the board; and

(F) Revisions and amendments, as needed, to the Hawaii Revised Statutes.

(2) Make inquiries to elicit descriptions of programs, recommendations, and justifications for reorganizing and consolidating educational programs and supporting programs, projections of future developments or needs within educational programs, recommendations for administrative changes, and elaboration of procedural details;

(3) Evaluate and make recommendations concerning the transfer of employees whose duties affect educational systems or are in functional areas covered by this Act;

(4) Make recommendations on the timing and sequence of personnel transfers;

(5) Evaluate and make recommendations concerning the transfer of records, equipment, machinery, supplies, contracts, and other personal property used in the performance of functional areas covered by this Act;

(6) Evaluate and make recommendations on the timing and sequence of programmatic transfers;

(7) Evaluate and make recommendations on the schedule of consolidation of services and programs provided by other departments to the educational system and the ability of the board of education to contract for those services;

(8) Receive public input in preparing legislation to implement the objectives and policies of this Act;

(9) Devise and recommend legislative and administrative action for an orderly transition;

(10) Evaluate and make recommendations concerning accounting, auditing, and accountability processes and protocols;

(11) Evaluate and make recommendations on the regularity with which the auditor should conduct audits of the department and submit reports and recommendations to the board;

(12) Make recommendations regarding legislation to provide immunity from legal process for the department and members of the board of education in a manner similar to the counties;

(13) Evaluate and make recommendations concerning any other matters pertinent to the implementation of the objectives of this Act; and

(14) Prepare and submit a report no later than nine months following ratification of the constitutional amendments, which report shall include recommendations for the enactment of any legislation necessary to achieve the objectives and policies of this Act.

The committee members shall serve without compensation, but shall be reimbursed for expenses, including travel expenses, necessary to perform their duties. The committee shall submit to the governor, the legislature, and the board of education a report and an evaluation of the structure and organization of the department of education, recommend changes, and then dissolve.

The board shall receive the committee's report, and shall prepare and submit a report to the governor and the legislature, and prepare legislation to implement the restructuring, reorganization, objectives, and policies of this Act, to be submitted twenty days prior to the convening of the regular session 2005 of the legislature for review, modification, or enactment by the legislature.

SECTION 20. Statutory material to be repealed is bracketed. New statutory material is underscored.

SECTION 21. This Act shall take effect upon its approval subject to the effective date in section 12 and provided that sections 13 to 18 of this Act shall take effect on July 1, 2005.

INTRODUCED BY:

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