Legislature(2013 - 2014)BARNES 124
03/10/2014 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB316 | |
| HB152 | |
| HB316 | |
| HB152 | |
| HB328 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 316 | TELECONFERENCED | |
| += | HB 152 | TELECONFERENCED | |
| *+ | HB 328 | TELECONFERENCED | |
| += | HCR 15 | TELECONFERENCED | |
HB 152-PERS TERMINATION COSTS
3:46:55 PM
CHAIR OLSON announced that the next order of business would be
HOUSE BILL NO. 152, "An Act requiring certain employers who
terminate participation in the defined benefit retirement plan
or the defined contribution retirement plan of the Public
Employees' Retirement System to make contributions related to
past service liability and pay termination costs; repealing a
requirement that employers who terminate participation in the
defined contribution retirement plan or the defined benefit
retirement plan of the Public Employees' Retirement System pay
for a termination cost study; and providing for an effective
date."
3:48:14 PM
REPRESENTATIVE STEVE THOMPSON, Alaska State Legislature,
introduced himself.
3:48:59 PM
REPRESENTATIVE CHENAULT moved to adopt the proposed committee
substitute (CS) for HB 152, labeled 28-LS0272\Y, Wayne, 2/26/14,
as the working document.
CHAIR OLSON objected for the purpose of discussion.
3:49:24 PM
JANE PIERSON, Staff, Representative Steve Thompson, Alaska State
Legislature, explained that HB 152 addresses the future
financial stability of the municipal Public Employees'
Retirement System (PERS) employers and PERS unfunded liability.
Legislation was passed in 2008 establishing that PERS is a
consolidated system combining the defined benefit and defined
contribution salary bases to pay down the unfunded obligations.
Paying off the unfunded obligation is predicated on a stable,
reasonably growing system-wide base. She related a concern in
the 2008 legislation was that employers might en mass elect to
convert PERS salaried employees to contracted positions to avoid
PERS costs thereby shrinking the PERS salary base needed to pay
off the unfunded obligation. To address this concern, the state
set a contribution floor such that employers would be required
to pay the greatest of 22 percent based on the current defined
benefit and defined contribution salary base or the total
payroll for the period ending June 30, 2008. Language providing
for termination studies was also added requiring employers who
terminate participation of a department, group or other
classification of employee to pay the following: the cost
associated with obtaining a termination study from the PERS
actuary; the actuarial cost to the employer for future benefits
due employees whose coverage is terminated; the past service
cost annually on each position terminated until the unfunded
liability paid off decades from now.
MS. PIERSON said the requirement for termination studies makes
it difficult for employers to manage their delivery of services,
discriminates against small municipalities, even though their
impact on the system is minimal, is costly, and nearly
impossible to implement in an equitable manner. It also fails
to recognize the original and personnel structures differ
between municipalities. The system-wide salaries have increased
by $325 million or 18.6 percent over the salary base floor
established in 2008. As a result, contributions towards the
unfunded liability have not been compromised; rather, they have
increased at a greater than actuarial assumed growth of four
percent, which is what was assumed in 2008. Thus, Version Y,
would eliminate termination costs and provide municipalities
with the operational flexibility to effectively manage the
delivery of programs and services while maintaining the minimum
22 percent contribution requirement.
3:52:32 PM
MS. PIERSON provided a section-by-section analysis of the
proposed committee substitute (CS) for HB 152, Version Y, as
follows [original punctuation provided]:
Section 1. Amends AS 39.35.615(i) Conforming language due
to the repealing of termination costs in AS 39.35.625,
eliminates being current on the termination costs as a
bar for an employer to renew a terminated department,
group or classification of employees into the PERS
system.
Section 2. Amends AS 39.35.620(k) Conforming language due
to the repealing of termination costs in AS 39.35.625,
eliminates being current on the termination costs as a
bar for a terminated employer participant to return into
the PERS system.
Section 3. Repeals:
· AS 39.35.625 Termination Costs
· AS 39.35.958(c) Assessing Termination costs
· AS 39.35.958(e) Payment of termination costs
· AS 39.35.958(f) Payment of the termination cost
study
Section 4. Annuls AAC 35.235.
Section 5. Is a conditional effective date upon the
legislature taking action this session to smooth the PRS
accrued liability.
Section 6. Provides for an immediate effective date for
sections 1-4 of the bill, upon the passage of section 5.
3:54:04 PM
REPRESENTATIVE JOSEPHSON asked whether the $1.2 billion in
Section 5 is in addition to the $3 billion the governor is
proposing.
MS. PIERSON answered no; that it was basically a placeholder in
case the $3 billion did not come through that the governor was
proposing.
3:54:37 PM
REPRESENTATIVE JOSEPHSON asked whether this would mean the
governor would only be contributing $1.8 billion to reduce the
unfunded liability.
MS. PIERSON answered yes. She pointed out that funds would also
go into the Teachers Retirement System (TRS). She pointed out
that this bill just addresses the PERS unfunded liability.
3:55:11 PM
REPRESENTATIVE JOSEPHSON referred to the fiscal note from the
DOA Retirement and Benefits, which suggests the institution
paying the costs would change, but the costs would not change,
and this could add $75 million to the state's burden.
MS. PIERSON acknowledged that is true; it assumes a 20 percent
reduction for a $75 million fiscal note, which is the latest
draft fiscal note from the agency.
3:56:06 PM
REPRESENTATIVE JOSEPHSON referred to the 2013 Administrative
Order 37 issued by Mayor Sullivan, which he characterized as one
of the most divisive in his community. He asked how to avoid
incentivizing reduction in the public sector, since the public
sector tends to be more responsive to citizens.
MS. PIERSON said she believes his concern relates to
privatization. She noted that there may be some privatization,
but if that is happening that some divisions might not be able
to be maintained. She recalled that happened in Fairbanks. She
said that currently the employer must keep departments that it
cannot maintain due to the termination costs and studies.
3:57:55 PM
REPRESENTATIVE JOSEPHSON asked why HB 152 was abandoned for the
wholesale repeal of the termination studies in Version Y.
MS. PIERSON answered that the sponsor thought it was a cleaner
approach.
3:58:19 PM
REPRESENTATIVE THOMPSON stated that as a former mayor having
faced costs of PERS when the actuarial presented the actuals,
and in observing how termination costs have affected
municipalities, he predicted many small communities will go away
because they can't afford to exist. He explained that with the
current budget situation and potential reductions to revenue
sharing, municipalities will likely layoff more people, which
will lead to more termination studies and increased liabilities.
He offered his belief that this is something that must be
addressed, that it has a fiscal note, but it will save
communities.
3:59:21 PM
REPRESENTATIVE CHENAULT expressed concern about the
municipalities and the costs associated with PERS and TRS and
said the state has stepped up to the tune of hundreds of
millions of dollars, if not $1 billion. The state has picked up
the amount in excess of 22 percent for municipalities. He
cautioned that as the committee reviews this it needs to make
sure that it considers the municipalities "bottom line" but that
the committee also consider the state's "bottom line" in terms
of continuing to pay for associated costs.
4:00:13 PM
MICHAEL BARNHILL, Deputy Commissioner, Department of
Administration (DOA), stated that the DOA has been working with
municipalities and the Alaska Municipal League (AML) on various
versions of HB 152 for about three years. He said that,
generally speaking, the DOA is sympathetic to the concerns
expressed by the sponsor in terms of the difficulty in managing
the personnel workforce for municipalities, which is one reason
the DOA has been working with them. He asked to take a step
back and understand the reasons for termination studies and
costs in the first place, which Ms. Pierson adequately
addressed. The DOA is fundamentally concerned about cost
shifting. He reminded members the state has an $11.9 billion
unfunded liability across the PERS and TRS. In 2007-2008, the
legislature wanted to maintain some participation by
municipalities in paying off the unfunded liability. The state
was concerned that without statutory provisions to maintain the
participation, that positions would be pulled out of the PERS,
reducing the payroll base and the unfunded liability that would
be paid by the positions being included in the PERS payroll
would then shift to the state.
MR. BARNHILL acknowledged that as Speaker Chenault just
mentioned, since the enactment of Senate Bill 125 in 2008, the
state has paid in excess of $600 million on behalf of
municipalities through FY 2014. The state will continue to pay
substantial amounts on behalf of municipalities going forward.
This happens through the 22 percent employer contribution rate
cap. If the actuarial rate is greater than 22 percent, and it
has been in the PERS since 208, the state pays it. IN FY 15,
the actuary is recommending adopting an employer contribution
rate of 44 percent. The employers are capped out at 22 percent
but the actual rate will be 44 percent, which means the state
pays 22 percent of the total payroll on behalf of municipal
employees, which is considerable relief. He said he has not
done a state-by-state comparison, but he imagined this magnitude
of state assistance on behalf of municipalities is quite
extraordinary. The state has gone a considerable distance in
providing relief, he said. In 2008, one means of avoiding
further cost shifting, which is the reason for the termination
cost studies. Another feature put into law was the 2008 salary
floor; thus, if the municipal payroll base goes below what it
was in 2008, that 22 percent will be based on the 2008 payroll.
These are important measures to keep in place to preserve a
certain amount of municipal participation in paying down the
unfunded liability.
4:04:03 PM
MR. BARNHILL pointed out that the municipalities have found this
particular feature of law as being restrictive so the state has
been examining ways to make adjustments without shifting
unfunded liabilities to the state. He explained that Version Y
repeals all termination study cost requirements. The state's
actuary has said that if this is passed into law that all
municipalities will take 22 percent of their payroll out of PERS
service. He said the state isn't sure that is a good
assumption, but certain municipalities are considering making
changes that will pull a considerable number of PERS positions
out of PERS service. He did not think it would be unreasonable
to assume a 20 percent reduction over time. The actuary has
reported that the net present value out of pulling 20 percent of
the positions out of PERS will cost approximately $75 million,
assuming this takes place over an extended period of time.
4:05:30 PM
MR. BARNHILL explained that the governor has proposed to
appropriate $3 billion from the state's Constitutional Budget
Reserve to the PERS and TRS retirement trusts. He reported that
it would be allocated at $1.9 billion to the PERS and $1.1
billion to the TRS. Equally important to the governor's plan is
that on a going forward basis the state assistance for the PERS
will be capped at $172 million per year as compared to the
current fiscal year in excess of $300 million per year for PERS
grading up to close to $500 million. In response to a question,
Mr. Barnhill answered that the $157 million in the governor's
plan is state assistance from the general fund on behalf of
municipal employers, including the state since state employees
participate in PERS.
4:06:54 PM
MR. BARNHILL stated that capped state assistance is roughly 50
percent of the current costs for PERS, which is fixed until 2036
and should give substantial fiscal certainty with respect to
general fund expenditures going forward. Additionally, this
plan better aligns the municipal and state's interests in terms
of new unfunded liability. New unfunded liability can come in
the form of investment losses and changes that municipalities
may make to their payroll. Under the governor's proposal, any
new unfunded liability will get added to the end of the
amortization term in 2036, which is shared on a proportional
basis between the state and the municipalities. Under the
status quo any new unfunded liabilities that are created are
borne entirely by the state. When the legislature passed Senate
Bill 125 in 2008, there was an assumption that the payments the
state would make on behalf of municipalities would grade down,
but the opposite has happened and the costs have graded up
steeply. The reason for that is due to the substantial
dislocations in the investment markets. In FY 2009, the state
lost 25 percent of its investment assets.
MR. BARNHILL reiterated that the state has borne the unfunded
liability associated with that loss in the form of steadily
increasing state assistance payments. Under the governor's
proposal, new unfunded liability would be shared. In viewing
the conditional effect of this bill, if the legislature
appropriates $1.2 billion from the CBR for PERS and TRS, without
any indication how that would be allocated if the bill takes
effect. It is not clear that Version Y will accomplish what the
governor proposes, which is that $1.9 billion for PERS, capped
$157 million payments going forward through 2036, and alignment
of the state and municipal interests. The $1.2 isn't sufficient
to do that, so the $75 million - if all employers remove 20
percent out of PERS service - would still be borne by the state
under this version of the bill. He said that DOA's concerns
remain the same until a conditional effect is put into place
which is to align the interests through a capped state
assistance that will put new unfunded liability at the end of
the amortization terms to be shared by the state and
municipalities.
4:10:45 PM
CHAIR OLSON asked what kind of shape PERS would be in if it had
gone forward with Senate Bill 125 in 2008.
MR. BARNHILL answered that employer contribution rates paid by
employers and municipal employers would have paid $609 million
more than they did since the state picked up those payments. He
said you'd have to ask your constituents what that would have
felt like.
CHAIR OLSON offered his belief that a good number of entities
would not have been able to pay that.
MR. BARNHILL answered absolutely. He said that other states
have not provided this sort of relief to municipalities, which
are evident by the various bankruptcy proceedings that have
happened in Detroit, Stockton, and San Bernardino.
4:12:22 PM
KATHIE WASSERMAN, Executive Director, Alaska Municipal League
(AML), stated that municipalities truly appreciate the 22
percent that has saved numerous municipalities from huge
financial concerns. This bill was crafted with the governor's
proposal in mind, she said. She understood discussions are
being held about the amount. The first concern was not to
repeal, but after the governor's proposal, considerable
discussion was held with the DOA, the AML's members, and some
PERS board members that this could be tacked on to the end of
the amortization schedule. In other words, the municipalities
chose "to remortgage our home and extend the payments out." The
municipalities will cost share those costs with the state at the
end of the amortization over 31 years. She reminded members
that the non-state employers are 38 percent of the entire
liability. The AML and municipalities support Version Y.
Referring to Senate Bill 125, she said the termination costs
have made a huge difference on whether municipalities want to
accept grants that would entail hiring a grant person since it
would trigger a termination study and costs on that employee for
the next 25 years or until the end of the liability.
4:15:03 PM
MS. WASSERMAN recalled Representative Thompson's earlier
remarks. When you go to the small communities, the people
terminated must be included in a class or group. For example,
in the City of Pelican, if one harbormaster exists, and the
harbormaster is laid off, it will immediately trigger a
termination study; whereas in a larger community, laying one off
wouldn't trigger a study.
4:15:43 PM
CHAIR OLSON asked whether this applies to seasonal employees.
MS. WASSERMAN answered that will depend on agreements with the
state. She acknowledged that Mr. Barnhill has assisted
municipalities considerably. She understood that cuts will be
happening throughout the state, which usually results in a
trickledown effect. She stated that municipalities are in a "no
win situation" since municipalities to raise extra money through
taxes or cutting services since they cannot cut employees.
4:16:30 PM
REPRESENTATIVE CHENAULT asked for clarification if Anchorage and
Pelican laid off harbormasters, whether it would result in
termination studies.
MS. WASSERMAN responded that it would likely result in only one
study, through the City of Pelican.
REPRESENTATIVE CHENAULT asked if two municipalities eliminate a
harbormaster if it would result in two termination studies.
MS. WASSERMAN answered that the municipalities would have done
that if it were possible.
REPRESENTATIVE CHENAULT suggested that perhaps everyone could be
reclassified.
4:17:24 PM
MS. WASSERMAN stated that the municipalities have looked for
ways to make this work but are not trying to slip through the
cracks.
REPRESENTATIVE CHENAULT related he is trying to find a solution.
MS. WASSERMAN summarized that most municipalities know that the
governor's proposal at 22 percent is something they can budget;
that the municipalities are willing to pick up more years if
that is what it takes, but to have ongoing termination studies
constantly arising creates difficulties and it affects their
hospitals, schools, and economic development.
4:18:24 PM
REPRESENTATIVE HERRON said after reviewing correspondence he
understood municipalities want to eliminate the termination
studies. He wondered what would happen if a cost shift occurred
and the small municipalities didn't pay the costs. He asked
whether the PERS needs the termination cost study.
MS. WASSERMAN answered that if the governor's proposal goes
through in some form, the entire termination study that each
city incurs will be "pushed to end" and everyone will share the
costs.
REPRESENTATIVE HERRON asked whether the state would pay for the
studies.
MS. WASSERMAN answered that the [municipalities and the state]
will all pay for them.
REPRESENTATIVE HERRON clarified that if there was no cost to
municipalities whether the state would pick up termination
costs.
4:19:27 PM
MS. WASSERMAN answered that is not what is being proposed.
4:19:34 PM
REPRESENTATIVE HERRON asked if it would be acceptable if the
municipalities were not responsible but someone else paid the
termination study costs.
MS. WASSERMAN said that AML is not attempting to cost shift.
REPRESENTATIVE HERRON asked whether the AML would support
something like that to look out for the smallest employers.
MS. WASSERMAN answered that she would like to see the proposal
in writing.
4:20:12 PM
CHAIR OLSON said he's been out of municipal government for about
12 years. He asked whether the AML has been seeing a trend in
privatization, in which the jobs are contracted out.
MS. WASSERMAN answered that some communities are holding
discussions, but most of Alaska's communities cannot do so. She
recalled only two situations in a list of jobs that were
contracted out. She did not believe there has been much
discussion overall; however, she anticipated there could be
considerable "push back" from people in the community.
4:21:26 PM
CHAIR OLSON understood that many communities might be desperate
enough to do so since they may not see any other alternative.
MS. WASSERMAN offered her belief the communities would still
incur a termination study so they haven't done so.
CHAIR OLSON suggested it would do away with future termination
studies.
MS. WASSERMAN indicated she was unsure what municipalities might
do. She said she hoped that municipalities would not layoff
people.
4:22:10 PM
CHAIR OLSON asked whether smaller communities are not aware of
the issues or are not prepared.
MS. WASSERMAN asked for clarification on whether he meant not
prepared for extra costs or for termination studies. She stated
that municipalities are aware of the issues and many have not
laid off any employees since they don't want to incur the
termination study costs.
4:22:59 PM
CHAIR OLSON stated that there isn't any easy answer.
MS. WASSERMAN responded that the AML has been working on this
issue for three years. The AML has not been trying to push off
employee costs to the state and is trying to find a way to all
share the [unfunded liability costs], but the municipalities
cannot absorb the upfront costs every time they need to manage
their personnel.
4:23:23 PM
REPRESENTATIVE JOSEPHSON related his understanding that this
bill will shift costs to 2036.
MS. WASSERMAN answered that the AML hopes the governor's
proposal will pass. If so, this bill will transfer the unfunded
liability cost to the end of the amortization. The AML and
state would each pay 22 percent. She acknowledged there would
be some transfer of costs, but everyone shares the costs and the
payments would be extended at least five to six years or more.
4:24:24 PM
REPRESENTATIVE JOSEPHSON suggested that the original bill seemed
to take more a "scalpel than a knife" approach and have a
graduated system with payrolls under $1 million, $1-5 million,
and over $ 5 million. He wondered if smaller cities are having
more difficulty since they have one harbormaster instead of
three, whether the committee should consider the original
version of the bill as the approach.
MS. WASSERMAN answered that AML is very supportive of HB 152,
but with the governor's proposal the AML envisioned a way to
help even more and contain costs.
4:25:22 PM
REPRESENTATIVE JOSEPHSON said if he heard Mr. Barnhill
correctly, there is some resistance from the administration. He
asked whether the committee is back at "ground zero" on this
issue.
MS. WASSERMAN answered no, she did not think so, but Mr.
Barnhill would need to assess any pushback.
CHAIR OLSON said everyone seems to still be talking so he did
not think that the stakeholders were at loggerheads.
4:25:50 PM
BOB BARTHOLOMEW, Director of Finance, City and Borough of Juneau
(CBJ), commented that the CBJ has been working with AML. He
said that at times CBJ would be considered a small employer and
at others a large employer. From CBJ's perspective the
termination study is very difficult to implement and to try to
manage changes in the workforce. Two recent instances did not
try to remove PERS positions - and historically CBJ has not
removed many PERS positions - but CBJ has tried to make
organizational changes that would result in some classes not
being used. For example, an investment officer might not be
needed, but CBJ might need an investment accountant, and that
simple reclassification would trigger a termination study, even
though CBJ would still retain the same number of PERS employees.
Therefore, CBJ doesn't do something that makes logical sense
because CBJ doesn't know what that study will be.
MR. BARTHOLOMEW said the statement that it's hard to implement
and administer is true, which is something many municipalities
are encountering. He stated that the bill eliminating the
termination study makes things simpler. Secondly, the "big
picture" of the unfunded liability still exists and how it would
be affected by the bill creates some uncertainty, which is
difficult for employers. Representative Josephson's question
about how to minimize the risk and incentives to do some gaming
or downsizing brings the issue back to the governor's proposal.
He acknowledged considerable effort was made in the governor's
proposal and suggested that a comprehensive solution to move
forward and how to address the unfunded liability is how to
minimize the risk. If employers are confident that their share
will stay at 22 percent, and an infusion of capital occurs [via
the governor's proposal], the financial markets will likely
consider it as a positive, and local government credit ratings
won't be adversely affected. He offered his belief that this
bill on its own needs help as far as a comprehensive solution,
which includes the contribution and commitments to cap the rate
that will give the state some fiscal certainty on the general
fund. In response to Chair Olson, he stated that he previously
worked for the Alaska Permanent Fund Corporation and the
Department of Revenue.
4:29:36 PM
JIM WILLIAMS, Chief of Staff, Office of the Mayor, City of
Fairbanks, stated that he echoes the comments and concerns
expressed by Ms. Wasserman. The City of Fairbanks recognizes
that termination studies were added to prevent employers from
initiating steps to intentionally and unfairly reduce their
portion of the growing unfunded liability obligation. However,
evidence has shown that employers have not acted in this way.
In fact, the salary base has grown since 2008. Additionally,
the unintended consequences of the termination study and
contributions have led to some challenges for small
municipalities and employers. The impact of the termination
studies and long term continuing past service payment
obligations is significant and burdensome. The laws make the
day to day management of workforce impractical and difficult to
implement changes. He expressed concern about the long-term
sustainability and fairness of the PERS and supports HB 152.
4:31:46 PM
LUKE HOPKINS, Mayor, Fairbanks North Star Borough (FNSB),
suggested that if it was possible to roll back to the
discussions on unfunded liability, the FNSB's past chief
financial officer, Michael Lamb, identified the proposed
municipal share at 22 percent. He offered his belief that the
proposed appropriation of $1.9 billion for PERS should be done.
He urged members to move forward with HB 152. With respect to
termination study costs, he recalled Buck Consultants projected
$75 million in costs. He indicated that 20 percent reduction in
workforce seems to be a "pretty wild assumption." He emphasized
that he wanted to manage his workforce. He stated that the
FNSB's workforce has grown and the idea of termination costs
being assessed to municipalities seems unwarranted to him.
MAYOR HOPKINS asked the committee to consider removing the
termination study costs. He said, "It is real. It is not going
away, but there are ways to manage it." He suggested that HB
152 puts forward pieces that are reasonable for the state and
all the other employers who are paying [the liability] to PERS.
4:35:41 PM
KATIE KOESTER, Community and Economic Development Coordinator,
City Manager's Office, City of Homer, asked to testify in
support of HB 152, which eliminates termination study costs.
Municipalities are feeling "the pinch of lean times and reduced
budgets." Personnel costs represent the largest expense and
it's important for municipalities to manage their workforce and
personnel. Homer is one of the municipalities that have a
number of very small departments. In fact, the personnel
department has a personnel director and economic development
consists solely of her position. As the city makes choices
about how to organize the workforce, it is limited due to the
termination costs even in instances in which the city considers
whether it would be beneficial to have a city attorney.
Currently, the city contracts out its legal work, but it can't
consider creating a new class of employees. She expressed
support for transferring funds to the retirement trust and
thanks the legislature for its leadership on the serious issues
of past service cost, and PERS and TRS retirement costs. She
encouraged members to continue to work on this thorny issue.
4:37:25 PM
LUCINDA MAHONEY, Chief Financial Officer, Municipality of
Anchorage, stated that the MOA needs to have flexibility
especially as the state faces fiscally challenging times. She
acknowledged that repeal of termination costs will give the MOA
the ability to adjust the staffing levels as funding levels
change year to year. She emphasized that the MOA needs this to
determine what programs to offer citizens. For example, some
grant funding could be reduced or eliminated due to changes
beyond municipal control, such as reduced state or federal
funding. That loss of funding may result in our need to reduce
staff and change staff classifications. For instance, if the
MOA transferred an employee from one job classification to
another and in the process eliminate a classification, this will
trigger a termination cost even though the particular employee
is still employed. Anchorage is working on modernizing and
standardizing its job classification to achieve efficiency.
This effort could result in fewer classifications, but not
necessarily fewer employees. She said that the MOA currently
has many classifications on the books that have been vacant -
some for over 10 years. She indicated it would be efficient to
eliminate these positions since it would reduce administrative
costs, but the MOA doesn't do so since it may trigger
termination costs.
MS. MAHONEY said the MOA understands the fiscal impact everyone
faces due to the unfunded liability, but the fiscal impact of
the termination costs is significant to Anchorage, but
immaterial to the total PERS unfunded liability of $12 billion.
Certainly, the MOA appreciates every dollar that reduces the
unfunded liability and are committed to partner with the state
to reduce this burden by supporting the governor's plan to
contribute $3 billion and assuming a greater financial portion
of the unfunded liability. This represents nearly $300 million
more that the MOA would pay into the unfunded liability if the
$3 billion is contributed. As Kathie Wasserman explained, the
way that happens is because the 22 percent of our payroll would
be contributed for approximately five more years, which
illustrates the importance of this bill.
4:40:59 PM
JENNIFER JOHNSTON, Member, Anchorage Assembly, Municipality of
Anchorage, stated that she is past president of the AML. She
thanked the legislature for its assistance with the unfunded
liability. She stressed that the governor's plan outlines a way
in which the municipalities can share the risk and will have
alignment as far as managing the liability. She considered a
different perspective, and what happens with the termination
costs. For example, when the permanent dividend program
initially started, it was extremely labor intensive. She
surmised that the PFD program probably does not have as many
employees or the employees may be working differently in the
current "My Alaska" program. She asked what would happen to the
state if it maintained the past employees in non-existent
positions, and how they could adapt to the 21st Century
technology. She said that is how the state and municipalities
will have to manage. She suggested that the MOA wants to grow
and manage its workforce. She emphasized that the MOA wants to
grow its workforce but adapt to the 21st Century technology.
4:42:50 PM
REPRESENTATIVE JOSEPHSON asked for the AML's position at the
time Senate Bill 125 passed. In other words, did the
municipalities believe that dispensing with Tier III and defined
benefits was a bargain they'd be happy to take in exchange for
the burden of termination costs and termination cost studies.
He asked what whether she knew about the history.
MS. JOHNSTON answered that she came in late in 2008. She
related her understanding that a number of retirement funds
existed but no one knew the allocation of the unfunded
liability. Trying to come up with something that was fair to
everyone going forward was "trying to wrap their arms, their
huge arms around a big problem." She was unsure of the AML's
policy at the beginning, but she understood the AML was active.
She stated that if the state didn't come up with another program
other than defined benefits that the state would extend the
situation to a point at which it would be completely
unmanageable. She suggested that Mr. Barnhill and Ms. Wasserman
could probably better answer the question.
4:45:06 PM
REPRESENTATIVE JOSEPHSON related a scenario in which it was 2036
and the $11 billion unfunded liability was gone, but a new
unfunded liability was created by another stock market crash or
other variables. He wondered what would prevent the
municipalities from asking the state to absorb the unfunded
liability from the permanent fund. He wondered why this
wouldn't become a "moving target" for decades.
MS. JOHNSTON acknowledged that the MOA and state can't predict
the future. She offered her belief that the governor's proposal
does "set the table" for managing the unfunded liability and
having alignment between the employers and the state.
4:46:26 PM
CHAIR OLSON removed objection to adopt the work draft. There
being no further objection, the committee substitute (CS) for HB
152, Version Y was before the committee.
[HB 152 was held over.]