Legislature(2005 - 2006)HOUSE FINANCE 519
03/24/2006 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB266 | |
| SB172 | |
| HB190 | |
| HB377 | |
| HB278 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 190 | TELECONFERENCED | |
| += | HB 266 | TELECONFERENCED | |
| += | HB 377 | TELECONFERENCED | |
| += | SB 172 | TELECONFERENCED | |
| += | HB 278 | TELECONFERENCED | |
HOUSE BILL NO. 278
An Act relating to the Alaska Municipal Bond Bank
Authority; permitting the Alaska Municipal Bond Bank
Authority or a subsidiary of the authority to assist
state and municipal governmental employers by issuing
bonds and other commercial paper to enable the
governmental employers to prepay all or a portion of
the governmental employers' shares of the unfunded
accrued actuarial liabilities of retirement systems and
authorizing governmental employers to contract with and
to issue bonds, notes, or commercial paper to the
authority or its subsidiary corporation for that
purpose; and providing for an effective date.
REPRESENTATIVE MIKE HAWKER, SPONSOR, explained that the bill
authorizes the Alaska Municipal Bond Authority to consider
issuing pension obligation bonds (POBs) at the request of
the State or a municipal governmental employer. POBs are a
proven and acceptable tool to manage pre-existing
liabilities for State and local pensions. Bond market
participants are receptive to POBs, including bond insurers,
rating agencies and investors.
HB 278 would expand the authority of the Alaska Municipal
Bond Authority to support the State or municipality that
wishes to include POBs in their strategy to reduce the cost
of meeting unfunded pension liabilities. The bill does not
authorize any debt instruments to be issued. The State or
municipality would need to take a separate specific action
to utilize the new ability of the Municipal Bond Bank
Authority.
Co-Chair Meyer MOVED to ADOPT Amendment #1. Representative
Weyhrauch OBJECTED.
Representative Hawker asked to AMEND Amendment #1: Delete
lines 28 - 31, Page 4. That section is not needed. There
being NO OBJECTION, it was deleted.
Representative Hawker explained that a title change might be
necessary. He observed that Amendment #1 pertains to the
Public Employees Retirement System (PERS) and Teachers
Retirement System (TRS) contributions in place prior to the
passage of legislation last year. The Department would have
the authority to make regulations to allow that the employer
could prepay a portion of the actuarial liability.
Representative Hawker continued, Page 1, Lines 19-22,
address the provision that indemnifies an employer that
makes a prepayment.
Section 2, highlights the State's statutory authority for
municipal debt authority. It answers questions brought up
in House State Affairs (HSTA) Committee and clarifies that 2
or more municipalities may come together to make that type
transaction.
3:04:08 PM
Representative Hawker pointed out that the Municipal Bond
Bank could pool those activities; the language is
permissive. He added that Item C was another provision
requested and would authorize municipalities to enter into
fund diversion agreements.
3:04:50 PM
Representative Hawker continued, Sections 3 - 5, recognizes
that the individual employer (TRS) contributions must be
prepaid all unfunded pension for unfunded service costs.
3:05:50 PM
Page 4 - Identical language relating to the PERS
transactions. Page 1, Line 10, provides a technical
correction. That section from Lines 13 - 26, is legislative
policy guiding the Alaska Municipal Bond Bank. That
language was rewritten, adding a provision addressing the
authority. The Bond Bank must operate as a self-sufficient
operation with no expectation of subsidization of State
funds.
3:07:56 PM
Representative Hawker pointed out that the University of
Alaska had been included.
3:08:11 PM
Representative Weyhrauch questioned what constraints would
be placed upon the University of Alaska.
Representative Hawker responded that would be "empty
authority" and subject to the internal accounting and
editing controls. The capital market would regulate any
such contemplated transaction along with the legislative
sidebars. He felt it would be difficult for the University
to secure such a transaction without sufficient legislative
support. He did not believe the State would be overexposed.
Representative Weyhrauch stressed the need to address the
State's unfunded liability. He observed the extent of the
State's current liability @ $6.9 billion dollars.
Representative Hawker pointed out that the legislation would
only provide an additional tool in that toolbox and that the
program would be optional for municipalities.
Representative Kelly pointed out a technical correction on
Page 4, Line 25, that the period after "notes" should be a
comma. Representative Hawker concurred.
3:13:01 PM
Representative Hawker advised that the Department of Revenue
does not support the transactions; however, he reminded
members that the Legislature is an independent body. He
pointed out statewide interest in the legislation.
Co-Chair Meyer spoke in support of the bill.
Representative Weyhrauch spoke in support of additional
appropriations to municipalities, but noted that it was
unlikely that they would receive further State funds.
Representative Hawker pointed out that the State will not be
liable; he reiterated the municipality's desire for the
transaction. Co-Chair Meyer countered that the State is
ultimately responsible if the bonds default. Representative
Hawker stated it would be a moral liability, but not a
direct liability of the State.
3:16:34 PM
In response to a question by Representative Weyhrauch,
Representative Hawker explained that "pooling provisions"
were added to assist the smaller entities, which are feeling
the largest impact. The intent is to minimize the cost
associated with the liability. Smaller communities would be
more likely to avail themselves of assistance from the
municipal bond bank.
3:18:03 PM
Representative Kelly spoke in support of the legislation and
noted that the liability is nearly $7 billion dollars. He
felt the problem is worse than anticipated and that the
legislation could add an optional tool. He felt that there
were reasonable protections for the downside.
3:20:13 PM
Representative Kerttula questioned why the University of
Alaska had been included.
Representative Weyhrauch WITHDREW his OBJECTION to Amendment
#1 as amended. There being NO further OBJECTION, amended
Amendment #1 was adopted.
Representative Kerttula reiterated her question regarding
inclusion of the University. Representative Hawker
responded that it resulted from a request brought forward by
the University. They have a large outstanding pension
obligation and it would provide them the authority to use
the professional services available through the Alaska
Municipal Bond Bank.
3:22:12 PM
Representative Hawker reviewed the definition of
governmental employer and observed that the University would
fall under that definition.
3:23:21 PM
Representative Weyhrauch suggested that the Department of
Law be included in the definition.
3:23:48 PM
Representative Kelly inquired if school districts would be
included. Representative Hawker noted that the bill was
drafted to encompass school districts, but pointed out that
most have higher regulatory structures.
3:25:00 PM
Representative Kelly observed that the term intercept funds
were used and/or a fund diversion, questioning if that was
fair. Representative Hawker agreed and acknowledged that a
transaction would not occur if capital markets were not
favorable.
3:25:56 PM
Representative Weyhrauch advised that states using the
pension obligation bonds are currently in serious trouble.
He observed the high risk involved.
Representative Weyhrauch believed that the legislation could
provide a false sense of security. He acknowledged that it
could help address the problem, but emphasized the need for
prudence.
3:27:07 PM
Representative Hawker agreed that any financial transaction
has risks. He noted discussions in previous committees
about the misuse of such transactions and referred to backup
regarding ratings. Representative Hawker noted that most
failures occur when entities are not realistic or are too
aggressive. He maintained that the State of Alaska is
operating in an atmosphere of reality. The transactions
have exceeded 8 percent with a 2 - 3 percent arbitrage.
Compound interest works to the favor of the employer.
Representative Hawker emphasized that lessons learned in
other jurisdictions have been included into the proposal.
3:30:46 PM
Co-Chair Meyer pointed out the new indeterminate fiscal
note.
Representative Hawker agreed, explaining there is no way to
know if a transaction would be completed.
3:31:51 PM
Representative Kelly expressed frustration with the size of
the liability. He noted that there are Alaskans not
invested in solving the problem, and that employees must be
part of the solution.
3:33:27 PM
Representative Hawker observed that there are problems with
paying cash up front to cover the liability. The State
would forgo the ability to mitigate its obligation with
other funding sources. There are no simple solutions and
there is no silver bullet. The legislation is one tool in
the toolbox.
3:34:22 PM
Representative Weyhrauch spoke to the complexity of the
PERS/TRS system repayment and recommended deleting the
University of Alaska. Representative Hawker accepted the
change.
Representative Weyhrauch MOVED to delete "the University of
Alaska" on Page 5 of Amendment #1.
Representative Kelly did not object, however, pointed out
that the University has a significant problem, which also
must be solved. He recommended further deliberation on
inclusion of the University.
3:37:03 PM
Representative Hawker noted that the issue could be reviewed
in the Senate.
3:37:24 PM
Representative Weyhrauch stated that not withstanding
significant increases in K-12 payments that must be made to
the PERS/TRS system, the money should not be taken out of
the classrooms. He warned that including the University
would raise issues of "finances and politics". He urged
distinguishing the University from the school districts.
3:38:30 PM
There being NO OBJECTION, the University was deleted.
Representative Foster MOVED to REPORT CS HB 278 (FIN) out of
Committee with individual recommendations and with the
accompanying new indeterminate note.
CS HB 278 (FIN) was reported out of Committee with
"individual" recommendations and with a new indeterminate
note by the House Finance Committee for the Alaska Municipal
Bond Bank.
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