Legislature(2013 - 2014)HOUSE FINANCE 519
04/15/2014 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB385 | |
| SB138 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 385 | TELECONFERENCED | |
| += | SB 138 | TELECONFERENCED | |
HOUSE BILL NO. 385
"An Act relating to additional state contributions to
the teachers' defined benefit retirement plan and the
public employees' defined benefit retirement plan; and
providing for an effective date."
2:15:45 PM
Co-Chair Stoltze asked the commissioner of the Department
of Revenue (DOR) to discuss the bill and corresponding
fiscal notes.
2:16:33 PM
ANGELA RODELL, COMMISSIONER, DEPARTMENT OF REVENUE,
reported that the bill incorporated the governor's plan to
place $3 billion from the Constitutional Budget Reserve
(CBR) into the Public Employees' Retirement System (PERS)
and Teachers' Retirement System (TRS) trust funds;
approximately $1.8 billion into PERS and $1.1 billion into
TRS. She indicated that the bill stipulated an ongoing
deposit into each of the respective funds every year; $343
million into TRS and $157 million into PERS. She commented
on the sustainability of the governor's plan and alleged
that it could be supported in future operating budgets,
paid in full by FY 36. The governor's plan afforded the
state to maintain its AAA credit rating. In 1961 Moody's
Investors Service issued Alaska its first AA credit rating.
At present, the state had a AAA ranking. She opined that
the governor's plan placed the state in the needed
financial position to address its liabilities and future
contracts for major infrastructure projects including the
gasline. A large cash infusion payment was required in FY
15. Yearly payments would become part of the operating
budget starting in FY 16. She acknowledged that the payment
amount may need to be adjusted up or down depending on
actuarial and market experience. She urged the committee to
support HB 385.
Representative Wilson relayed her concerns about the vague
language of the bill referring to a payment of "up to $500
million" rather than a specific amount. She pointed out
that the state should make a yearly payment of $500 million
to ensure meeting the specified timeline.
2:20:36 PM
Commissioner Rodell responded that she anticipated the
request would be $500 million; $343 designated in statute
for TERS and $157 for PERS. She stated that in the bill the
actuary was required to do performance calculations to
ensure the state stayed on target with the timeline. The
way the bill was currently written, the state could seek
legislative approval for a larger or smaller payment amount
depending on the performance of the state's trust funds.
Representative Wilson clarified that the state would be
adding $2.3 billion to the unfunded liability fund due to
an anticipated $700 thousand not being included in the FY
14 operating budget. She also assumed that the state would
be looking for $500 million out of the FY 15 operating
budget. Commissioner Rodell responded affirmatively.
2:22:24 PM
Vice-Chair Neuman reviewed the information from Buck
Consultants, page 2 (copy on file). He referenced the
funding policy and noted that the projections provided were
not predictions but rather expectations supposing all of
the actuarial assumptions were exactly realized including
an 8 percent investment rate of return in each year from
2014 through 2043. He wondered if, at any time and period,
an 8 percent average rate of return had been realized.
Commissioner Rodell responded that the average rate of
return for the previous 28 years was just under 8 percent.
In analyzing different time periods the state had varying
results. For example, the rate of return over the three
previous years was 11.09 percent. She reported that
historically there were years of both negative and positive
earnings. In 2009, the state had negative earnings in
excess of almost 20 percent.
Vice-Chair Neuman stated that much depended on the stock
market. Commissioner Rodell agreed.
2:24:27 PM
Representative Costello discussed two fiscal notes for HB
385. The first note provided for a direct appropriation to
the PERS account and had a fiscal impact of $1.8 billion in
FY 15 and $157 million in FY 16 through FY 20. The second
note provided for a direct appropriation to the TRS account
and had a fiscal impact of $1.1 billion in FY 15 and $343
million in FY 16 through FY 20.
2:27:00 PM
Representative Costello mentioned that of the two plans
that had been put forth during the session the current plan
before the committee had a higher contribution on an annual
basis and would have a substantial effect on state
reserves. She wondered about the health of the reserves
over the next decade.
Co-Chair Stoltze clarified the reserves of the available
funds for state expenditures.
Commissioner Rodell qualified that Representative Costello
was referring to a document dated April 12, 2014 prepared
by the Legislative Finance Division, not by DOR. The plan
generated a large request on the reserve funds and was not
taken lightly. She pointed out that the reserves would be
an important part of budget discussions over the next five
to ten years. The department looked at the draw on reserves
required with something other than the governor's plan and
concluded there was more value in maintaining reserves and
putting the requests into the trust funds. She reported
that in ten years the state reserves would be exhausted.
She opined there would be significant discussion about the
state's spending priorities over the following 5 to 10
years. She believed that the governor's plan would put the
state in a sound financial position from a financial
reporting and rating standpoint even if the reserves were
at low levels. She indicated that the state would have a
much better revenue picture in two or three years. She
opined that the document would guide the legislature. She
emphasized that the document did not indicate the state
would need to tap into the permanent fund.
Co-Chair Stoltze stated that it had been the legislative
intent to provide a deposit into the pension fund. He
believed that the efforts of the Legislative Finance
Division to come up with a plan had been mischaracterized.
2:32:13 PM
Representative Holmes stated her appreciation for the
deliberative process that had taken place over the previous
few weeks. She reiterated that both plans required a cash
infusion of at least $3 billion up front. She clarified
that the current plan the committee was evaluating
consisted of $3 billion the first year and $500 million per
year split between PERS and TRS through 2035. A partial
payment covering the remaining balance was to be paid in
2036.
Representative Holmes also acknowledged that payments could
potentially be adjusted up or down, which would increase or
decrease the payment time frame. She mentioned that the
state was to meet with its actuaries on a regular basis,
adjusting things as needed, in order to avoid an additional
unfunded liability.
2:34:40 PM
Commissioner Rodell concurred with Representative Holmes'
review of the bill. She agreed that it was crucial to have
the actuary continue to do progress assessments into the
future.
Representative Gara defended the plan proposed by David
Teal and complimented him on a job well done. He
acknowledged that Mr. Teal did the legislature a great
service. The department gave the legislature its latest
revenue source book indicating that within 10 years there
would be a reduction in oil production down to below 300
thousand barrels per day and that excess money would not be
available to the state. Mr. Teal's approach allowed some
flexibility. The state satisfied its bond raters by paying
a lump sum of $3 billion in 2014 in the current form of the
bill. He asked the commissioner if she thought the bond
raters cared whether the remaining debt was paid over 19
years, 20 years, or 24 years, for example, as long as the
state made a substantial payment upfront to show its
commitment to paying off its debt. He asked how the time
frame affected the ratings.
2:37:53 PM
Commissioner Rodell replied that the bond raters cared
about the length of time and that a faster payoff was
optimal. She stated that the commitment grew larger and
more expensive with a longer wait. There was a balance
between having budget flexibility without over burdening
the state with additional debt.
Representative Gara relayed that up to $500 million meant
that the amount could be less than $500 million. He asked
why "up to" was used versus identifying a specific number.
Commissioner Rodell replied that the recommendation was
given because earnings could be such that the funding ratio
required a lesser appropriation. She knew from the Buck
Consultants' letter, there would be some portion to finish
the funding in 2036, potentially less than the $500
million. She added that another contribution could be
solicited.
2:40:44 PM
Co-Chair Austerman discussed the total liability of $11.9
billion as the combination of PERS and TRS. He asked what
percentage of the total liability went to PERS and what
percentage went to TRS.
Commissioner Rodell replied that approximately two-thirds
or $8 billion went to PERS and one-third or $4 billion went
to TRS.
Co-Chair Austerman asked about who was responsible for the
$8 billion PERS unfunded liability. He commented that it
was not all the state's responsibility. He went on to say
that approximately 42 percent of the liability belonged to
the municipalities. He furthered that of the 42 percent
paid by the municipalities 22 percent of their payroll went
towards PERS where they were carrying. He wanted to make
sure that it was placed on record that the extra 20 percent
that the municipalities had as a liability, was actually
being paid for by the state. The state was not requesting a
change.
Commissioner Rodell concurred.
2:43:38 PM
Representative Munoz MOVED to REPORT HB 385 out of
committee with individual recommendations and the
accompanying fiscal notes. There being no objection it was
so ordered.
HB 385 was REPORTED out of committee with a "do pass"
recommendation and with two new fiscal notes from the State
Assistance to Retirement Funds for the Office of Management
and Budget.
2:44:12 PM
AT EASE
2:50:49 PM
RECONVENED
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 138 H FIN Black & Veatch 04.15.14.pdf |
HFIN 4/15/2014 1:30:00 PM |
SB 138 |