Legislature(2017 - 2018)HOUSE FINANCE 519

04/19/2017 01:30 PM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to a Call of the Chair --
+ HB 74 DRIVER'S LICENSE & ID CARDS & REAL ID ACT TELECONFERENCED
<Bill Hearing Canceled>
+ SB 34 DRIVER'S LICENSE & ID CARDS & REAL ID ACT TELECONFERENCED
<Bill Hearing Canceled>
<Pending Referral>
+ SB 97 PENSION OBLIGATION BONDS TELECONFERENCED
Heard & Held
+ HB 150 PAY, ALLOWANCES, BENEFITS FOR MILITIA MEM TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 90 OCC. LICENSING FEES; INVESTIGATION COSTS TELECONFERENCED
Moved CSHB 90(FIN) Out of Committee
+= HB 167 STATE AGENCY PERFORMANCE AUDITS TELECONFERENCED
Moved HB 167 Out of Committee
SENATE BILL NO. 97                                                                                                            
                                                                                                                                
     "An Act relating to pension obligation bonds."                                                                             
                                                                                                                                
1:39:24 PM                                                                                                                    
                                                                                                                                
SENATOR  ANNA MACKINNON,  SPONSOR, explained  that the  bill                                                                    
took  the  current  statutory  $5  billion  pension  bonding                                                                    
authority  and  reduced  the  amount  to  $2.5  billion.  In                                                                    
addition,  the legislation  required  the administration  to                                                                    
submit  a  proposal  to the  Legislative  Budget  and  Audit                                                                    
Committee  (LBA)  within  45 days  of  issuing  any  pension                                                                    
obligation bonds  (POBs). She noted  that the  procedure was                                                                    
the same as  any RPL (request per  legislature). She pointed                                                                    
out  that  the  process  included  the  legislature  in  the                                                                    
process and  allowed for time  to respond if  necessary. She                                                                    
believed the  administration supported the  legislation. She                                                                    
recounted  that in  the prior  year when  the administration                                                                    
proposed the  POB plan, her constituents  requested the bill                                                                    
and  questioned  whether  any amount  of  the  authorization                                                                    
should  be spent  on POBs  due  to the  inherent risks.  She                                                                    
thought  that   the  administration  had  proposed   a  very                                                                    
conservative  approach to  POB's. She  detailed that  unlike                                                                    
other cities  or states, the administration's  plan "did not                                                                    
take all  of the  benefits upfront."  Other states  that had                                                                    
defaults  with POB's  "took all  of the  benefits when  they                                                                    
were  most  at  risk."  The state's  approach  deferred  the                                                                    
smaller payments until the end  of the loan proposition. She                                                                    
reiterated   that   the    administration's   approach   was                                                                    
conservative. She  informed the committee that  if the state                                                                    
had  issued  POB's  in  2007 the  results  would  have  been                                                                    
positive. Had  the Walker  administration issued  POB's last                                                                    
year  positive gains  were also  anticipated. She  qualified                                                                    
that  the "positive  influences" needed  20 to  30 years  to                                                                    
come to fruition which prompted  her to introduce SB 97. She                                                                    
believed that the  legislation did not tie the  hands of the                                                                    
administration,  invited  engagement with  the  legislature,                                                                    
and  added  a layer  of  transparency  to the  process.  She                                                                    
offered to review the sectional analysis.                                                                                       
                                                                                                                                
1:43:16 PM                                                                                                                    
                                                                                                                                
LAURA  CRAMER,  STAFF,  SENATOR  ANNA  MACKINNON,  read  the                                                                    
sectional analysis:                                                                                                             
                                                                                                                                
     *Section  1: Requires  a subsidiary  created under  the                                                                    
     Alaska   Housing  Finance   Corporation  to   submit  a                                                                    
     proposal  to the  Legislative Budget  and Audit  (LB&A)                                                                    
     Committee prior  to borrowing  money and  issuing bonds                                                                    
     for the purpose of  financing or facilitating financing                                                                    
     of a governmental employer's  share of unfunded accrued                                                                    
     actuarial liability of retirement systems                                                                                  
                                                                                                                                
     *Section  2: Creates  a  new  subsection outlining  the                                                                    
     process  for   submitting  a   proposal  to   the  LB&A                                                                    
     Committee                                                                                                                  
                                                                                                                                
     *Section  3:  Requires  the  State  Bond  Committee  to                                                                    
     submit  a  proposal  to the  LB&A  Committee  prior  to                                                                    
     issuance  and  sales  of  bonds   for  the  purpose  of                                                                    
     financing or  facilitating financing of  a governmental                                                                    
     employer's   share   of  unfunded   accrued   actuarial                                                                    
     liability  of retirement  systems, including  the costs                                                                    
     of issuance and administration                                                                                             
     *Section  4: Creates  a  new  subsection outlining  the                                                                    
     process  for   submitting  a   proposal  to   the  LB&A                                                                    
     Committee                                                                                                                  
                                                                                                                                
     *Section 5:  Amends the  pension obligation  bond limit                                                                    
     from $5,000,000,000 to $2,500,000,000                                                                                      
                                                                                                                                
     *Section  6:  Requires   the  Pension  Obligation  Bond                                                                    
     Corporation to submit a proposal  to the LB&A Committee                                                                    
     prior to  issuance and sales  of bonds for  the purpose                                                                    
     of   financing   or   facilitating   financing   of   a                                                                    
     governmental  employer's  share   of  unfunded  accrued                                                                    
     actuarial  liability of  retirement systems,  including                                                                    
     the costs of issuance and administration                                                                                   
                                                                                                                                
     *Section  7: Creates  a  new  subsection outlining  the                                                                    
     process  for   submitting  a   proposal  to   the  LB&A                                                                    
     Committee                                                                                                                  
                                                                                                                                
     *Section  8: Requires  the Alaska  Municipal Bond  Bank                                                                    
     Authority to  submit a proposal  to the  LB&A Committee                                                                    
     prior to  issuance of  bonds, notes,  commercial paper,                                                                    
     or  other  obligations  for the  purpose  of  assisting                                                                    
     employers to prepay all or  a portion of their share of                                                                    
     unfunded  accrued actuarial  liabilities of  retirement                                                                    
     systems in an effort to reduce their costs                                                                                 
                                                                                                                                
     *Section  9: Requires  a subsidiary  created under  the                                                                    
     Alaska  Municipal  Bond  Bank  Authority  to  submit  a                                                                    
     proposal  to  the  LB&A Committee  prior  to  borrowing                                                                    
     money and  issuing bonds for  the purpose  of financing                                                                    
     or facilitating financing  of a governmental employer's                                                                    
     share  of  unfunded   accrued  actuarial  liability  of                                                                    
     retirement systems                                                                                                         
                                                                                                                                
     *Section  10: Creates  a new  subsection outlining  the                                                                    
     process  for   submitting  a   proposal  to   the  LB&A                                                                    
     Committee                                                                                                                  
                                                                                                                                
     *Section 11:  Conforming language  for the powers  of a                                                                    
     subsidiary   corporation  created   under  the   Alaska                                                                    
     Municipal Bond Bank Authority                                                                                              
                                                                                                                                
     *Section 13:  Conforming language  for the  issuance of                                                                    
     bonds  and  notes by  the  Alaska  Municipal Bond  Bank                                                                    
     Authority                                                                                                                  
                                                                                                                                
1:45:06 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara recalled  that in 2007 he  was supportive of                                                                    
investing  in POB's.  He noted  the unpredictable  nature of                                                                    
the  stock market.  He wondered  why the  current investment                                                                    
climate  with  rising interest  rates  was  a good  time  to                                                                    
invest in  POB's. Senator MacKinnon  explained that  in 2007                                                                    
the state  was facing a  $10 billion to $12  billion pension                                                                    
liability of  which, the  $5 billion  figure was  roughly 50                                                                    
percent of the liability but  did not factor in the unfunded                                                                    
liability for healthcare costs.  When the legislature issued                                                                    
a cap  of $5 billion it  was less than 50  percent yet still                                                                    
considered  a  significant  amount. Currently,  the  state's                                                                    
unfunded  liability  was  $6.1  billion.  The  $2.5  billion                                                                    
number was less  of a ratio but still  reduced the liability                                                                    
and  was  close  to  the amount  the  administration  deemed                                                                    
reasonable to sell  in the market at one  time. The unfunded                                                                    
liability was  only as  accurate as  the performance  of the                                                                    
assumptions of  the rate of  the return. She  clarified that                                                                    
the  $$6.1 billion  figure  was as  reliable  as the  credit                                                                    
rating agencies reports that contained  the numbers and were                                                                    
based on assumptions that  the state's actuaries calculated.                                                                    
She reminded the committee  that the legislature contributed                                                                    
$3 billion in FY 15 in order to reduce the debt load.                                                                           
                                                                                                                                
Co-Chair Foster  noted Representative Pruitt had  joined the                                                                    
meeting.                                                                                                                        
                                                                                                                                
Vice-Chair Gara  commented that he  understood the  risk and                                                                    
ascertained that in  hind sight, he wished  the state issued                                                                    
the POB's  in 2007.  He asked why  POB"s were  authorized in                                                                    
the past but never  issued. Senator MacKinnon confirmed that                                                                    
POB's were  issued in 2007  but no proposal was  ever issued                                                                    
until  the current  governor believed  that  the market  was                                                                    
"timed right." She related that  the public opposed the bond                                                                    
issue because  of the  risk and the  proposal was  "met with                                                                    
resistance."                                                                                                                    
                                                                                                                                
1:50:22 PM                                                                                                                    
                                                                                                                                
Representative Grenn  cited the  sponsor statement  and read                                                                    
the following:                                                                                                                  
                                                                                                                                
     Credit rating agencies continue to monitor our                                                                             
     activities and the policy measures we pass to improve                                                                      
     our financial foundation.                                                                                                  
                                                                                                                                
Representative Grenn  inquired whether lowering  the bonding                                                                    
authority  contributed  to   improving  the  state's  fiscal                                                                    
foundation or was  a "prudent" change to  protect our credit                                                                    
rating.  Senator   MacKinnon  believed  that   lowering  the                                                                    
authority would be  positively viewed by the  market and the                                                                    
agencies.                                                                                                                       
                                                                                                                                
Representative Ortiz asked about  any potential downsides of                                                                    
the  action. Senator  MacKinnon responded  that she  did not                                                                    
see any. She indicated that  she always attempted to balance                                                                    
both  sides   of  the  issue   with  any   legislation.  She                                                                    
acknowledged  that many  thought  POB's were  too risky  and                                                                    
should be  avoided. She  agreed that  the bonds  required 30                                                                    
years of  returns to  work and were  risky. She  thought the                                                                    
legislation was a  compromise and was a "nod"  to the credit                                                                    
rating agencies  that sent  the message  that the  state was                                                                    
not relying  on debt  to solve the  problem. She  added that                                                                    
utilizing  debt might  be  a component  but  not the  entire                                                                    
approach.  Representative  Ortiz  asked what  the  negatives                                                                    
were  of   taking  the  liability  down   to  zero.  Senator                                                                    
MacKinnon pondered whether the  legislature could "sustain a                                                                    
legislative  override"  for  a   governor's  veto.  She  had                                                                    
confidence   that  both   legislative   bodies  endorsed   a                                                                    
reasonable approach to alert credit  agencies that they took                                                                    
the  state's financial  situation seriously  by not  totally                                                                    
relying on debt  to solve the problem. She  mentioned the $3                                                                    
billion pension liability payment as proof.                                                                                     
                                                                                                                                
1:54:15 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton  mentioned the idea  of taking  the unfunded                                                                    
liability to zero.  He wondered at what point  the state was                                                                    
required  to  pay  post-retirement pension  adjustments  the                                                                    
state was required to pay  to the retired employees. Senator                                                                    
MacKinnon reported that  when the state hit  100 percent [no                                                                    
liability] the  retirees could ask for  additional benefits.                                                                    
When  the  $3  billion  payment   was  made  in  FY  15  the                                                                    
legislature's goal was to achieve  80 percent funding of the                                                                    
state's liability  and was  the point  debt could  be repaid                                                                    
with "positive investment returns."  She had voted with many                                                                    
of her colleagues  in favor of much of the  money paying for                                                                    
the  Teaching  Retirement  System (TRS)  instead  of  Public                                                                    
Employees'  Retirement System  (PERS).  She delineated  that                                                                    
the  TRS debt  was entirely  the state's  debt but  PERS was                                                                    
shared  with  the  municipalities  at a  60  percent  to  40                                                                    
percent split.  The House  and Senate  came together  to pay                                                                    
the state's  100 percent  debt and  attempted to  achieve an                                                                    
overall 80 percent ratio. She  cautioned against achieving a                                                                    
90 percent ratio because if  the state over-contributed than                                                                    
retirees  could   ask  for  more.  She   believed  in  being                                                                    
cognizant of  how much the  state could fund  the liability.                                                                    
She thought  that the  state's estimated  unfunded liability                                                                    
was understated due to the  current rate of return. Co-Chair                                                                    
Seaton recapped  that Senator  MacKinnon discussed  that the                                                                    
state owned  100 percent  of the TRS  liability and  only 60                                                                    
percent of the  PERS. He queried whether the  state would be                                                                    
better  off funding  its 100  percent  liability versus  the                                                                    
PERS system. He  indicated that if the state  funded PERS at                                                                    
100   percent   liability,   the   state   would   pay   the                                                                    
municipalities' retirement  reimbursement and end  up paying                                                                    
for  their debt.  He asked  whether  she objected  directing                                                                    
POB's to the TRS system.                                                                                                        
                                                                                                                                
1:58:47 PM                                                                                                                    
                                                                                                                                
Senator  MacKinnon  responded  that  the  bill  was  in  the                                                                    
committee's possession and she  would trust the judgement of                                                                    
the committee. She detailed that  when the state established                                                                    
the 22  and 12 percent  ceilings on  municipal contributions                                                                    
the numbers were a compromise.  The municipalities asked the                                                                    
state  of Alaska  to help  fund the  liabilities. The  state                                                                    
chose  to  help by  extending  the  years  on the  debt  and                                                                    
thereby lowering the  payments. She did not  think the state                                                                    
should  turn  away  from the  municipalities  struggle  with                                                                    
meeting  the payment  obligations  and  avoid burdening  the                                                                    
local  communities further  by  not providing  more than  60                                                                    
percent.  She   advocated  working  together  in   the  best                                                                    
financial  interest  of  all and  not  exclude  helping  the                                                                    
municipalities.  She  hoped  that the  administration  would                                                                    
talk with the legislature  regarding the municipalities when                                                                    
considering  POB's.  She  remembered  that  the  legislature                                                                    
directed  the  administration  to  deposit much  of  the  $3                                                                    
billion to TRS  but still wanted to make a  deposit into the                                                                    
PERS system  to help  local communities  and the  state. She                                                                    
remarked  that the  cap set  at  22 percent  meant that  the                                                                    
state was paying the portion above 22 percent.                                                                                  
                                                                                                                                
Representative  Pruitt questioned  the  role of  LBA in  the                                                                    
bill.  He noted  that  ultimately  the administration  could                                                                    
make  its own  decisions regarding  RPL's. He  asked whether                                                                    
the  sponsor   considered  granting   LBA  the   ability  to                                                                    
ultimately  veto an  issuance  of  POB's. Senator  MacKinnon                                                                    
responded that  last year  the administration  had responded                                                                    
to  concerns   raised  by  the  House   and  Senate  Finance                                                                    
Committees  regarding the  proposed POB  plan. She  revealed                                                                    
that  any  issues  raised against  POB's  could  cause  "the                                                                    
buyers  to increase  the cost  of debt  through risk."  "The                                                                    
minute the legislature starts talking  in a negative way the                                                                    
administration had to include  the documentation in the bond                                                                    
packets." She  concluded that LBA was  the appropriate place                                                                    
to  decide on  the  issuance because  if the  administration                                                                    
decided to proceed  regardless, all that was  needed to stop                                                                    
the process  was for the  legislature to write a  letter and                                                                    
the  credit  rating would  increase.  She  relayed that  the                                                                    
Senate Finance Committee had written  a letter without prior                                                                    
knowledge   of  the   consequences.   She   felt  that   the                                                                    
administration was  sensitive to the issue  and the reaction                                                                    
of the  legislature. In addition,  the state's  debt manager                                                                    
was required  to relay  any issues to  the purchaser  of the                                                                    
bonds.   Representative   Pruitt   acknowledged   that   the                                                                    
administration  had  consulted  with  the  legislature  over                                                                    
whether to proceed with the  POB's. He surmised that Senator                                                                    
MacKinnon  was  comfortable  with  LBA's  role  due  to  the                                                                    
increased costs  of bonding signaled by  any resistance from                                                                    
the   legislature.   Senator   MacKinnon  replied   in   the                                                                    
affirmative.  She  discerned  that  even  a  dialog  raising                                                                    
concerns  about POB's  in the  LBA  committee process  could                                                                    
trigger a rate increase  based on borrower's discomfort. She                                                                    
felt  comfortable  with the  language  but  deferred to  the                                                                    
committee.                                                                                                                      
                                                                                                                                
2:07:20 PM                                                                                                                    
                                                                                                                                
Representative  Guttenberg  reminded  members  to  refer  to                                                                    
Mayor  Navarre's  comments on  the  debt  liability and  its                                                                    
origins in  previous testimony.  [Mayor Mike  Navarre, Kenai                                                                    
Peninsula  Borough,   Presentation  to  the   House  Finance                                                                    
Committee  on March  28, 2017]  He surmised  that last  year                                                                    
when the  governor announced the  POB issuance  and received                                                                    
strong opposition  resulting in his decision  not to proceed                                                                    
indicated that the  "process did work." He  thought that the                                                                    
LBA  provision  in  the  bill   in  favor  or  against  held                                                                    
"significant" sway over  whether to proceed or  not. He felt                                                                    
that the state  already had a system that  appeared to work.                                                                    
He  wondered  why  the process  needed  to  change.  Senator                                                                    
MacKinnon relayed  that the debt to  bonding authority ratio                                                                    
was presently  a significantly  larger portion  of potential                                                                    
indebtedness  that carried  great risk.  The bill  offered a                                                                    
similar ratio as  the situation in 2007.  She qualified that                                                                    
the  state was  underestimating  the liability  but did  not                                                                    
think  the  ratio  should be  above  50  percent  especially                                                                    
without approval  of the legislature. She  revealed that the                                                                    
administration was  supportive of  the lower  authority. She                                                                    
maintained that  SB 97  was a positive  move for  the states                                                                    
bond rating and offered a  positive ratio. She believed that                                                                    
the LBA provisions  created a formal process  to include the                                                                    
legislature in  the decision. Representative  Guttenberg was                                                                    
wondering what  the state was  trying to fix.  He reiterated                                                                    
his belief  that the system  worked last fall.  He suggested                                                                    
that merely not using the  $5 billion authority was an asset                                                                    
and had  a value. He  felt that  the authority and  its best                                                                    
use was  "a tool  in the state's  coffer." He  believed that                                                                    
the  administration's   acceptance  of  the   lower  bonding                                                                    
authority  was its  "standard answer"  for "making  do" with                                                                    
less.                                                                                                                           
                                                                                                                                
2:13:58 PM                                                                                                                    
                                                                                                                                
Representative   Thompson  was   sensitive  to   the  issues                                                                    
regarding   the  local   contribution.  He   spoke  to   his                                                                    
experience as  the previous mayor of  Fairbanks. He recapped                                                                    
that  when he  was mayor  the  city had  requested its  PERS                                                                    
balance from the state actuarial.  He reported that the city                                                                    
was told  it had an  excess of  $35 million and  three years                                                                    
later  the state  claimed  the city  owed  $130 million.  He                                                                    
noted that  the 22  percent cap was  imposed in  response to                                                                    
the situation.  Senator MacKinnon replied that  the bill did                                                                    
not alter  the contribution rate. She  countered that credit                                                                    
rating  agencies were  aware that  Alaska could  utilize its                                                                    
unissued debt  and further indebt  the state.  The situation                                                                    
jeopardized the state's bond rating.  She commented that the                                                                    
by reducing  the bonding authority  the legislation  put the                                                                    
state  in  the right  direction.  She  advocated taking  the                                                                    
state's pension  obligation "very  seriously." She  spoke to                                                                    
the  current  fiscal crisis  and  funding  the $2.8  billion                                                                    
budget  deficit  as  a  priority  and  considered  the  $6.1                                                                    
billion  pension obligation  and  future  indebtedness as  a                                                                    
"background issue" that needed to be addressed.                                                                                 
                                                                                                                                
Representative  Pruitt referenced  the discussion  regarding                                                                    
the credit rating. He wondered  whether lowering the bonding                                                                    
authority  thereby lowered  "the  potential opportunity  for                                                                    
debt" and the ratio.                                                                                                            
                                                                                                                                
DEVEN  MITCHELL, EXECUTIVE  DIRECTOR, ALASKA  MUNICIPAL BOND                                                                    
BANK  AUTHORITY,  DEPARTMENT  OF REVENUE,  replied  that  he                                                                    
agreed   with   Senator   MacKinnon  that   an   outstanding                                                                    
authorization  impacted  credit.  He  relayed  that  in  the                                                                    
current  situation, the  authority was  for a  liability the                                                                    
state  already   had  "and  was  a   little  different."  He                                                                    
recounted that  last fall the  $2.3 billion to  $3.3 billion                                                                    
POB's  issuance  proposal  received  ratings  in  line  with                                                                    
current ratings  except for Standard and  Poor's decrease of                                                                    
a "notch"  from AA+  to AA flat.  He likened  predicting the                                                                    
credit rating agencies was similar  "to reading tea leaves."                                                                    
He understood  the legislature's  point of view.  He offered                                                                    
that  as an  "issuer  of debt"  he  perceived that  "greater                                                                    
flexibility  resulted  in  better  execution"  of  debt  but                                                                    
recognized the  need for a  balanced approach.  He concluded                                                                    
that  "at the  end of  the  day he  could not  think of  any                                                                    
objection to reducing the current authorization."                                                                               
                                                                                                                                
Representative   Guttenberg   clarified  that   bonds   were                                                                    
prohibited  from  any  other type  of  use  besides  pension                                                                    
obligations. Mr.  Mitchell responded in the  affirmative. He                                                                    
qualified   that   when   the  initial   authorization   was                                                                    
established   the  legislation   included   a  "couple"   of                                                                    
different  types of  authorization  based  on the  financial                                                                    
situation  at the  time that  would not  be utilized  in the                                                                    
"current construct of the retirement  system." He noted that                                                                    
one  provision granted  the municipalities  use of  the bond                                                                    
bank to cover  the unfunded liability. He  revealed that the                                                                    
option  was  not  viable  because  the  bonding  would  only                                                                    
benefit the state and not  the municipality. He informed the                                                                    
committee   that  the   current  PERS   actuarially  assumed                                                                    
contribution rate  was over  26 percent,  the municipalities                                                                    
paid 22 percent  and the state paid the  remainder. He added                                                                    
that funding the  debt service was based on  a commitment by                                                                    
the  legislature and  the administration;  no collateral  or                                                                    
taxing  pledge  was  committed  to  the  debt  service.  The                                                                    
state's  commitment  to  the  debt  service  was  a  "lesser                                                                    
pledge"  than   what  was  typical  in   "other  instances."                                                                    
Representative  Guttenberg  asked  whether  the  POB  credit                                                                    
rating "stood  alone or  was built  into the  state's credit                                                                    
rating  as a  whole."  Mr. Mitchell  answered  that the  POB                                                                    
credit rating  relied on the  state's credit rating  and was                                                                    
one  notch  under  the state's  overall  credit  rating.  He                                                                    
elucidated that the legislation  required a credit rating of                                                                    
at least AA minus.  Representative Guttenberg clarified that                                                                    
the $3  billion payment was a  cash infusion and not  a bond                                                                    
issue. Mr. Mitchell responded that he was correct.                                                                              
                                                                                                                                
2:25:52 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Gara   mentioned  the  provision  that   a  bond                                                                    
issuance was  predicated on consent  by LBA within  45 days.                                                                    
He wondered whether the time  lag would have "a potential or                                                                    
material imperial"  on the  issuance. Mr.  Mitchell answered                                                                    
in  the  negative.  He  related that  last  year  the  state                                                                    
engaged  in  79  meetings with  institutional  investors  in                                                                    
order to sell  the bonds and the day before  the pricing and                                                                    
commitment the state  reneged on the sale.  He revealed that                                                                    
as  a  result  the  banking community  would  only  purchase                                                                    
future  POB's  from  the  state with  some  type  of  formal                                                                    
approval  from the  legislature. He  indicated that  the LBA                                                                    
provisions  formalized  the  current "ad  hoc  process."  He                                                                    
determined  that there  was "a  lack of  clarity" on  how to                                                                    
obtain the  appropriate approval  from the  legislature that                                                                    
the bill provided.                                                                                                              
                                                                                                                                
Co-Chair   Seaton  asked   Mr.  Mitchell   to  explain   the                                                                    
difference between  soft and  hard obligations  for unfunded                                                                    
liability payments.  Mr. Mitchell  explained that  the state                                                                    
could choose  not to fund the  annual actuarially determined                                                                    
funding requirements  without "negative  ramification." When                                                                    
debt  was  issued  making  it   a  hard  liability,  missing                                                                    
payments resulted in consequences  such as rating downgrades                                                                    
and lost access to the  capital markets. He ascertained that                                                                    
recently "an  evolution of  pension liability  was underway"                                                                    
and was elevated in the  considerations of the credit rating                                                                    
agencies. He  detailed that a  failure to pay  POB liability                                                                    
resulted in  a similar  rating downgrade  as a  debt service                                                                    
payment. Co-Chair  Seaton had  expressed concerns  about the                                                                    
pension  adjustments  when the  liability  was  paid at  105                                                                    
percent. He  wondered whether the  state was  statutorily or                                                                    
contractually obligated  to pay the  post-retirement pension                                                                    
obligations  in addition  to  cost-of-living increases.  Mr.                                                                    
Mitchell   deferred  the   question  to   the  Division   of                                                                    
Retirement and  Benefits. He thought that  the payments only                                                                    
applied to Tier 1 retirees.                                                                                                     
                                                                                                                                
2:31:09 PM                                                                                                                    
                                                                                                                                
Co-Chair  Seaton referenced  the  state's split  obligations                                                                    
between PRS and  TRS. He questioned whether  the state could                                                                    
issue  POB's  to  the  percentage  of  liability  where  the                                                                    
municipality would  not need to  pay its contribution  at 22                                                                    
percent.  He  wondered  whether the  18  percent  obligation                                                                    
would  apply  or could  POB's  be  structured  in a  way  to                                                                    
maintain the  22 percent split.  Mr. Mitchell  answered that                                                                    
the  22 percent  was  statutorily set  in  SB 125  (Pers/Trs                                                                    
Contribut'ns;Unfunded  Liability)  [CHAPTER   13  SLA  08  -                                                                    
04/08/2008]  and did  not fluctuate.  He  learned last  fall                                                                    
that  the way  the  actuarial math  worked, any  significant                                                                    
cash  payment into  PERS over  $500  million diminished  the                                                                    
percentage  of payroll  requirement  in the  short term.  He                                                                    
discovered  that   the  22  percent  was   a  "hard  payment                                                                    
requirement" set  in statute. Last  year's $3.3  billion POB                                                                    
transaction  proposal would  have funded  TRS at  90 percent                                                                    
and  the  portion  that  the  state  paid  would  have  been                                                                    
refinanced if  the bonds were issued.  Co-Chair Seaton asked                                                                    
whether  there  was any  downside  to  limiting the  pension                                                                    
liability to 85  percent through use of POB's.  He wanted to                                                                    
avoid  any situation  where the  state  was overfunded.  Mr.                                                                    
Mitchell responded  that the  administration was  looking at                                                                    
funding the  liability at 90  percent. He observed  that "if                                                                    
the  state  was  borrowing  at  one  rate  and  expected  to                                                                    
reinvest  at a  higher rate  than the  larger the  issue the                                                                    
greater the potential benefit." He  deduced that for TRS the                                                                    
85  percent  limit  "could  restrict  the  potential  of  an                                                                    
issuance" but seemed satisfactory for PERS.                                                                                     
                                                                                                                                
2:36:21 PM                                                                                                                    
                                                                                                                                
Representative  Guttenberg asked  if the  state reached  105                                                                    
percent  what the  state's  liability  to increase  benefits                                                                    
was. Mr. Mitchell  deferred the question to  the Division of                                                                    
Retirement    and   Benefits.    Representative   Guttenberg                                                                    
referenced other  state's lower  credit rating  and reported                                                                    
that  the  states  were  still  able  to  borrow  money.  He                                                                    
wondered whether  a credit rating  could be  disregarded and                                                                    
money could be  borrowed at a reasonable  rate. Mr. Mitchell                                                                    
answered  that California  had  experienced  a volatile  and                                                                    
tumultuous period with its credit  rating. He commented that                                                                    
borrowing  depended  on  the   type  of  credit  and  market                                                                    
conditions that  determined how expensive the  credit rating                                                                    
differential  was.  He observed  that  there  was a  lot  of                                                                    
anxiety  with  the  market  and  rating  agencies  regarding                                                                    
Alaska due to the budget situation.                                                                                             
                                                                                                                                
Co-Chair Foster OPEND Public Testimony.                                                                                         
                                                                                                                                
2:40:18 PM                                                                                                                    
                                                                                                                                
Co-Chair Foster CLOSED Public Testimony.                                                                                        
                                                                                                                                
SB  97  was   HEARD  and  HELD  in   committee  for  further                                                                    
consideration.                                                                                                                  

Document Name Date/Time Subjects
REAL ID Act - Transmittal Letter - Rep. Edgmon.pdf HFIN 4/19/2017 1:30:00 PM
HB 74
CS HB 74 (STA) Sectional Analysis.pdf HFIN 4/19/2017 1:30:00 PM
HB 74
SB97 Sponsor Statement 04.08.2017.pdf HFIN 4/19/2017 1:30:00 PM
SB 97
SB97 Sectional Analysis ver D 04.08.2017.pdf HFIN 4/19/2017 1:30:00 PM
SB 97
HB150 Additional Document - 2017 Military Pay Chart 3.14.17.pdf HFIN 4/19/2017 1:30:00 PM
HB 150
HB150 Additional Document-Sockeye Fire Spreadsheet from DMVA 3.14.17.pdf HFIN 4/19/2017 1:30:00 PM
HB 150
HB150 Sponsor Statement 3.14.17.pdf HFIN 4/19/2017 1:30:00 PM
HB 150
HB150 Supporting Document-Letter DMVA 3.14.17.pdf HFIN 4/19/2017 1:30:00 PM
HB 150
HB 74 HFIN DPS Regarding REAL ID -signed.pdf HFIN 4/19/2017 1:30:00 PM
HB 74
CSHB 74 House Finance REAL ID Presentation 4.19 FINAL v2.pdf HFIN 4/19/2017 1:30:00 PM
HB 74
HB 90 - Amendment #1.pdf HFIN 4/19/2017 1:30:00 PM
HB 90
HB 90 Testimony Letter.pdf HFIN 4/19/2017 1:30:00 PM
HB 90