Legislature(2017 - 2018)HOUSE FINANCE 519
04/13/2017 01:30 PM FINANCE
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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." 3:23:24 PM PAUL LABOLLE, STAFF, REPRESENTATIVE NEAL FOSTER, discussed the bill: SB 125 changed the PERS system from a multiple employe r plan to a cost share plan. It transferred the indivi dual liability of the 160 PERS employers and consolida ted it so that all the employers share in that liabili ty. SB 125 also created what is commonly referred to as th e 2008 salary floor. This requires employer's contribute 22% of annual salaries or 22% of FY08 salaries, whichever is greater. The floor was instituted to ensure that the system could not be "gamed" by disc ouraging employers from replacing PERS employees with contract hires to reduce their base con tribution to the system. Some municipalities have found themselves under the 20 08 floor through no fault of their own. A large change in population results in a reduced tax base, wh ich affects the services a city can provide. As that financial reality drives a city to downsize, current l aw exacerbates this problem by keeping their PERS cont ribution at the 2008 level. This bill targets the comm unities whose population has dropped by more than 25% since the previous census. HB 47 will address this issue in two ways: 1.Establish a new floor of FY 2012 for communities who se population decreased by more than 25% between 2000 and 2010. 2.Allows the PERS administrator to negotiate penalty i nterest rates on delinquent payments. HB 47 does not intend to repeat the "2008 floor" debat e but to correct one of the unintended consequences caused by the arbitrary line that debate created. 3:25:51 PM Representative Ortiz understood the intent of the bill. He wondered how the department assessed things at present. He wondered if there was a process in place to determine whether municipalities were doing their part. He followed up on his question. Mr. LaBolle replied that the original bill a couple of years ago - the bill before the committee the debt was not absolved. 3:28:31 PM AT EASE 3:28:36 PM RECONVENED Representative Pruitt MOVED to ADOPT Amendment 1, 30- LS028\A.1 (Wayne, 4/8/17) (copy on file). [Note: due to length of amendment it is not included here. See copy on file]. Co-Chair Foster OBJECTED. Representative Pruitt explained the amendment. 3:32:04 PM Co-Chair Foster was open to hearing from Representative Johnston. REPRESENTATIVE JENNIFER JOHNSTON, stated the bill was a great example about how the state may not be able to manage the unfunded retirement liability. She stated that she had previously been in the Alaska Municipal League and had considered the issue of the unfunded liability. She believed the larger entities needed to manage their employees - not to penalize individuals for the way they did business. She thought the committee should reassess the fiscal note. 3:37:04 PM Representative Johnston asked if the committee had addressed the 2008 floor. It gave other abilities to manage the unfunded liability. She thought it was time to address the issue. She was looking to fiscally manage an elephant in the room. 3:39:12 PM Representative Pruitt thought the last component was very important. He stressed that if the state was not enforcing the issue it could come up in the future. He believed it needed to be dealt with Co-Chair Seaton asked the Department of Administration (DOA) to address the committee. Representative Johnston had been hesitant to say the last statement, because of possible liability issues. KEVIN WORLEY, CHIEF FINANCIAL OFFICER, DIVISION OF RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION, stated that the division looked at annual salaries, and had recently completed the FY 16 evaluation in the previous June. Those salaries were compared to the floor of 2008. He stressed that statutes stated that there should be a bill for the difference between the actual paid salaries and the 2008 floor. 3:42:34 PM KATHY LEA, CHIEF PENSION OFFICER, DIVISION OF RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION, shared that her division continued to enforce termination and there were three aspects to termination. 3:47:35 PM Representative Thompson wondered whether the cost of a termination study was approximately $15,000. Ms. Lea replied that it depended on the number of terminated employees. Representative Wilson wondered whether a termination study would be required after a division ceased to exist. Ms. Lea answered in the negative, if the people were assigned to another PERS position. Representative Wilson wondered whether a termination study was required when 15 employees were lost. Ms. Lea answered in the affirmative. Representative Wilson queried the cost of the study. Ms. Lea answered it was difficult to answer because it was based on individual employees. Representative Wilson stressed that the state required the study, to ensure that the employer was paying enough into the retirement. Ms. Lea stated that the study was done to examine the individual employees retirement. 3:51:24 PM Representative Wilson thought it was almost as big of a deal than the original bill to the smaller communities. She spoke to individuals being penalized by the state for something that was not their fault. Ms. Lea did not characterize it as penalizing. Representative Wilson asked if many of the employers had known they would be in the current position. Ms. Lea answered that it had happened about 10 years earlier. The basic consideration was how much the GF could absorb. The amount needed to pay the unfunded liability would not change, it was about who would pay. Representative Ortiz asked if the net effect of changes made in 2008 that it was much harder for smaller communities to comply. Mr. Worley asked Representative Ortiz to repeat the question. Representative Ortiz complied. 3:54:50 PM Mr. Worley asked for clarification. Representative Ortiz reiterated his question. Ms. Lea answered that the number of employees with each employer varied. There could be a smaller employer with only one or two employees covered or a larger employer with hundreds of employees covered. She did not believe it was possible to make a sweeping statement that smaller employers were more impacted. Representative Ortiz spoke about triggering a study. He surmised that if a person was eliminated from a category it could trigger a study. Ms. Lea replied in the affirmative. Representative Ortiz stated that moving employees into a different classification would not trigger a study. Ms. Lea agreed. 3:58:35 PM Co-Chair Foster referred to Representative Johnston's statement that the bill was similar to a bill introduced in 2014. He believed the fiscal note had been indeterminate at the time. Representative Johnston spoke to the issue. She stressed that termination studies were part of the process. She remarked that the University of Alaska was below the 2008, and they were paying for that cost. 4:03:10 PM Co-Chair Seaton clarified the committee was currently addressing Amendment 1. Representative Guttenberg noted that it was possible to determine liability focusing on certain groups. He wondered how much of the amendment would challenge the negotiated agreement rate of 22 percent. Ms. Lea clarified her understanding of the question. Representative Guttenberg affirmed. Representative Guttenberg asked how the balance of burden between larger and smaller communities. Ms. Lea answered that it was specific to the employer. It was difficult to make a generalization. She stressed that it was very particular to the makeup of the employer and how their covering. Co-Chair Seaton asked for clarification. He referred to a prior fiscal note. Ms. Lea answered that the fiscal note was not current. Co-Chair Foster stated that each time the bill did not get passed it meant fiscal liabilities were adding up. He did not support the amendment. 4:08:47 PM Representative Pruitt provided wrap up on the amendment. He stated the underlying bill may seem like a small bill, but it was a big deal for communities. Likewise, so was the amendment. He stated the issue could be addressed at present or later on. He believed it was worth analyzing whether they should move forward on the issue. Co-Chair Foster MAINTAINED his OBJECTION. A roll call vote was taken on the motion. IN FAVOR: Ortiz, Pruitt, Thompson, Tilton, Wilson OPPOSED: Kawasaki, Gara, Grenn, Guttenberg, Seaton, Foster The MOTION FAILED (5/6). 4:12:07 PM Representative Wilson was sorry the amendment failed. She thought the bill picked winners and losers. Co-Chair Seaton felt that increasing the budget was not prudent. Representative Wilson interjected it was not $75 million. Co-Chair Seaton noted the previous fiscal note on a bill had been that amount. Representative Wilson stated much had changed. Representative Pruitt did support moving the bill forward He suspected that some of the communities would be coming back with some of the challenges addressed in Amendment 1. 4:15:26 PM Vice-Chair Gara explained the two fiscal notes. Representative Wilson stated were not four communities written into the bill. She asked if there was a way to cover other communities under the bill in the future. Mr. LaBolle asked for a repeat of the question. Representative Wilson complied. Mr. LaBolle replied in the negative. Vice-Chair Gara MOVED to REPORT HB 47 out of committee with individual recommendations and the accompanying fiscal notes. Representative Wilson OBJECTED. A roll call vote was taken on the motion. IN FAVOR: Thompson, Tilton, Gara, Grenn, Guttenberg, Ortiz, Pruitt, Foster, Seaton OPPOSED: Wilson The MOTION PASSED (10/1). There being NO further OBJECTION, HB 47 was REPORTED out of committee with a "do pass" recommendation and with one new fiscal impact note from the Department of Administration and one zero note from the Department of Administration.