Legislature(2017 - 2018)SENATE FINANCE 532
04/25/2018 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB306 | |
| HB47 | |
| HB217 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 306 | TELECONFERENCED | |
| + | HB 47 | TELECONFERENCED | |
| + | HB 217 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 47
"An Act requiring certain municipalities with a
population that decreased by more than 25 percent
between 2000 and 2010 that participate in the defined
benefit retirement plan of the Public Employees'
Retirement System of Alaska to contribute to the
system an amount calculated by applying a rate of 22
percent of the total of all base salaries paid by the
municipality to employees of the municipality who are
active members of the system during a payroll period;
authorizing the administrator of the defined benefit
retirement plan of the Public Employees' Retirement
System of Alaska to reduce the rate of interest
payable by certain municipalities that are delinquent
in transmitting employee and employer contributions to
the retirement plan; and providing for an effective
date."
9:49:16 AM
Co-Chair MacKinnon offered a brief history of the bill in
committee.
REPRESENTATIVE NEAL FOSTER, SPONSOR, stated that the bill
would provide relief for communities that paid into the
PERS system and had lost more than 25 percent of its
population since the last census. He said that the relief
would be provided by resetting the minimum payments for the
2008 salary levels to the 2012 salary levels. He used the
example of Galena, which had lost 30 percent of its
population, reflected in the last census, due to the
closure of the Air Force base. He shared that
municipalities had to pay into the PERS system based on one
of two alternatives: an amount based on their current
salary level or an amount based on what their salary level
was in 2008, referred to as the 2008 salary floor. The
floor was established when the legislature polled municipal
PERS systems in 2008 and existed under the rationale that
local governments usually grew rather than shrinking. He
explained that the problem in Galena had been that the
salary level had shrunk from $1.5 million in 2008 to
$770,000 in 2012. According to the PERS system, Galena
still had to make contributions into the PES system as if
it had a $1.5 million workforce. He lamented that Galena
did not have the resources to pay into the retirement
system for workers that they did not have and could
continue to let their PERS bill grow or close their city
office. He hoped that the bill could foster a compromise
that would provide Galena with some relief.
9:53:00 AM
PAUL LABOLLE, STAFF, REPRESENTATIVE NEAL FOSTER, stated
that the reason for Galena's shrinking workforce was the
removal of the Air Force Base. He informed that state law
did not allow for bankruptcy for municipalities, nor could
cities dissolve unless debts were paid, which would leave
the state responsible for the unfunded liability the city
had amassed.
Senator Stevens asked whether any other communities in the
state faced similar problems and whether there was any
assistance from the military when communities faced the
closure of a base.
Mr. LaBolle stated that there were five communities that
fit the definition of population loss as defined by the
bill. He listed Pelican, St. George, and Galena as three
that were affected. He said that when the Air Force base
moved out of Galena assets had been left with the city.
9:55:19 AM
Senator von Imhof found the legislation compelling.
9:56:35 AM
Co-Chair MacKinnon pondered the economic impact on a
community losing a military installation. She wondered
whether there could be any help on the federal level. She
asked whether termination studies had been done for Galena
to determine the total liability.
Representative Foster addressed how the federal government
had been involved in Galena. He noted that the Air Force
had left over 1 million gallons of heating fuel, which was
now largely gone. He said that no other financial resources
had been bestowed on the community.
Co-Chair MacKinnon wondered about the fairness issue of the
state picking up the cost for this small community verses
others.
Mr. LaBolle stated that Galena had not done termination
studies. He said that SB 25 had two components: the
termination studies and the 2008 floor. Galena was
currently only affected by the floor. He shared that the
total debt, to date, was $1.5 million; changing the floor
would bring their minimum payment to $775 thousand. He
added that the payroll had grown to just over $1 million,
with the 2008 floor of $1.5 million.
Co-Chair MacKinnon observed that the state would pick up
the difference of approximately $133 thousand in
perpetuity.
Mr. LaBolle deferred to the Legislative Finance Division.
10:00:31 AM
Senator Olson wondered whether there was an alternative way
to keep the city functioning if the bill did not pass.
Representative Foster replied that he knew of no
alternative. He noted that the Galena Interior Learning
Academy was an asset and a hub in the community and
coordinated work on renewable energy and water and sewer
issues. He reiterated that there were no immediate
alternatives to the city office.
Senator Olson thought the importance of the city office in
Galena was sizable.
10:02:25 AM
Vice-Chair Bishop commented it was still unknown where the
employees from Galena had gone and whether they were
working in another PERS system. He noted that the school in
Galena had a 100 percent graduation rate.
10:03:11 AM
Senator Stevens asked about what happened if the population
returned to prior levels.
Mr. LaBolle stated that if the population grew and there
was a corresponding growth in municipal government, the
actuals would be paid versus the floor.
Senator von Imhof asked about the total population for the
three towns.
10:03:55 AM
AT EASE
10:05:30 AM
RECONVENED
Mr. LaBolle relayed the populations for the following
areas:
Anderson: 246
Atka: 61
Galena: 470
Pelican: 88
St. George 102
Senator von Imhof pointed out that Pelican had an employer
number of 200.
Mr. LaBolle stated that the number was a code for
identifying the positions.
Senator von Imhof referenced communities with percentages
under 25. She asked whether the sponsor had considered a
rubric with which to evaluate communities that would
benefit from the state's relief. She considered how to
afford the implementation over the long-term, and whether
there were multiple funding sources. She urged the sponsor
to develop a rubric.
10:08:09 AM
Co-Chair MacKinnon asked about the population size of
Anderson.
Senator Stevens replied that that population of Anderson
was 246.
Co-Chair MacKinnon corrected her precious statement about
the fiscal note and what the state would owe in perpetuity.
She corrected that the fiscal note reflected a timespan of
20 years to pay down the interest and the current
obligation. She noted that there was a defined end to the
contributions. She added that the contributions that the
cities had to make were effected by the size of the payroll
and not necessarily the number of employees. She felt that
it was important to understand the employee change in each
community versus the population drop. She reiterated
previous testimony that the population in Galena had
dropped 30 percent and that there was a $1.5 million
payroll in 2008.
Mr. LaBolle affirmed the numbers were correct.
Co-Chair MacKinnon continued that the $1.5 million payroll
of Galena had been reduced by half to $750,000 in 2012.
Mr. LaBolle answered in the affirmative.
Co-Chair MacKinnon thought that in considering the bill it
was important to recognize the payroll numbers and whether
the state government grew or declined. She reiterated the
need for a termination liability study of the system at the
current payroll. She referenced the fiscal note which
reflected expected small increases to the payroll in
Galena. She spoke to the effective date written into the
bill, which would alleviate the cities contributions for
2017, and make that a state responsibility with the new
floor. This required a supplemental request of $148,000 in
addition to the $141,000 of reoccurring operating costs.
10:13:01 AM
Senator Micciche wondered what the effect would be if the
$148,000 was amortized in future years rather than placed
in the supplemental budget.
Co-Chair MacKinnon said that if the supplemental was not
provided there could be a shortfall in the calculation that
could hit the state differently on the retirement system
and the state's obligation. She thought that if the
supplemental was not going to pass then the effective date
would need to be changed, which would affect the fiscal not
on the reoccurring operating cost line, or the liability
would go up and local communities would experience a higher
interest rate over the amortization period.
Ms. Lea agreed with that assessment.
Co-Chair MacKinnon concluded that the bill would positively
impact affected cities because they would not owe the
additional contribution or the interest payments to the
state - even though the fiscal year was nearly at an end.
10:14:29 AM
Mr. LaBolle added that the existing liability of $1.5
million would remain on the books after passage of the
legislation.
Co-Chair MacKinnon countered that the fiscal note showed an
outstanding liability of $1,099,633.35 from Galena. She
believed that the issue merited further discussion.
10:15:14 AM
Mr. LaBolle said that Section 1 of the bill contained
enabling language that corresponded to Section 4. He
addressed the Section 2, where the 2008 floor was adjusted
to establish a new floor for the effected communities of
FY12. He spoke to Section 2, subsection (B):
(B) June 30, 2012, if that total is less than the
total under
(A) of this paragraph, and the employer is a
municipality in which the population decreased by more
than 25 percent between 2000 and 2010, according to
the decennial census conducted by the United States
Bureau of the Census.
Mr. LaBolle relayed that Section 3 contained conforming
language. He said that Section 4 would allow for the PERS
administrator to negotiate the delinquent interest rate. He
furthered that bill would allow the administration to
negotiate an interest rate for delinquent payments. He
concluded that Section 5 was the effective date.
10:17:10 AM
Co-Chair MacKinnon OPENED public testimony.
JOHN KORTA, MAYOR, CITY OF GALENA, GALENA (via
teleconference), testified in support of the bill. He
discussed the closure of the Air Force base, which had been
a significant source of employment for Galena residents. He
said that in 2000, Galena had 675 residents, 470 in 2010,
resulting in the 30 percent decline. He furthered that in
2013, ice dammed the Yukon River, which led to a federal
disaster declaration. He relayed that the 2008 floor had
been established to prevent a municipality from gaming the
PERS system by contracting out work previously done by
municipal employees, in order to avoid making ongoing
contributions to PERS. He related that the current minimum
PERS contribution was based on 2008 salaries, the law had
not accounted for Galena's unexpected situation and had not
contemplated municipalities with sharply declining
populations. He stated that HB 47 only affected communities
that faced a minimum 25 percent decline in population
between 2000 and 2010. He asserted that the bill would
simply replace the 2008 floor with the 2012 floor. He
stated that Galena was currently paying contributions based
on the 2008 floor, which represented a population
substantially larger than the actual population. He
lamented that the cities required PERS contribution
approached half od the cities entire current payroll. He
shared that the FY08 salary total had been $1,513.365.19
for 36 employees, making their annual PERS contribution
$332,940. In FY 12, Galena's payroll was $765,776 for 17
employees. He reiterated that under the current 2008 floor,
Galena's annual minimum contribution was over half of their
entire payroll costs. He warned that if action was not
taken, the differential would continue to create an ever-
increasing obligation. He stressed that the cities
financially situation was so severe that in FY 11, a low
interest loan from the Alaska Bond Bank had to be secured
for heat and electricity in the city.
10:21:19 AM
Mr. Korta continued that HB 47 did not undermine the
underlying policy goals of the existing PERS structure but
helped ensure that municipalities remained able to
contribute to PERS, while recognizing that the city could
not make a contribution based on a larger population. He
noted that Galena had continued to pay 100 percent of its
annual obligation of 22 percent to PERS for its actual
payroll.
10:24:06 AM
Co-Chair MacKinnon asked the testifier to submit any
written testimony.
Co-Chair Hoffman asked about the status of the municipal
bond bank loan taken out in 2011 to pay for fuel.
Mr. Korta estimated that the loan balance was over $1
million. He said that all payments had been made on time.
Co-Chair Hoffman asked how long the borrowed $1 million
from the bond bank had been expected to last to pay for
heating fuel and electricity.
Mr. Korta stated that the city had to do some restructuring
after the closure of the base, which he believed was closer
to $2 million. He said that the city had paid down that
obligation and had stabilized since the restructure.
Co-Chair Hoffman asked whether the community of Galena had
an annual audit.
Mr. Korta answered in the affirmative.
Co-Chair Hoffman asked that the last 3 years' audits be
made available to the committee.
10:26:03 AM
Senator von Imhof looked at the city manager's testimony
(copy on file). She indicated that the salary in 2008 was
approximately $1.5 million, and the salary in 2012 was
about $765,000; yet both years the city had paid the same
PERS contribution of $332,000 for both years despite the
salaries going down by half.
Mr. Korta agreed.
Co-Chair MacKinnon asked whether the contributions had been
paid or owed.
Mr. Korta replied that the city had been paying actual
contributions but not paying on the accruing interest.
Senator von Imhof asked whether the $332,000 included the
accruing interest.
Mr. Korta deferred to the city manager.
Senator von Imhof understood that under a hypothetical in
the letter, the actual payroll should have been $164,000,
with a difference of $150,000.
Co-Chair MacKinnon thought that without a termination study
to reduce and pay to the plan the amount owed to a person
who retired, Senator von Imhof was correct. She thought it
was accurate when Vice-Chair Bishop stated that if the
employees moved to another state system, the employees
would continue to contribute to costs in the state system.
10:29:14 AM
KATHIE WASSERMAN, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL
LEAGUE, testified in support of the legislation. She
informed that that league had been working on retirement
termination studies and below the floor costs since SB 25
went into effect in 2008. She asserted that many smaller
committees in the legislature did not have a full
understating of PERS issues, which made passing legislation
difficult. She said that when she was mayor of Pelican, and
the population had dropped, the community had lost many
people from all areas of the workforce. She lamented that
the state could only expect so much from communities with
no money and no tax base.
10:32:53 AM
Co-Chair MacKinnon CLOSED public testimony.
Senator Micciche requested the audit information and
information on the city's tax base.
Mr. Korta replied that he would need a physical address to
send the information to.
Co-Chair MacKinnon provided the address.
Co-Chair MacKinnon stated that proposed amendments due the
following day at noon.
HB 47 was HEARD and HELD in committee for further
consideration.