Legislature(2021 - 2022)BARNES 124
04/19/2021 03:15 PM House LABOR & COMMERCE
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Audio | Topic |
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Start | |
Board of Professional Counselors | |
Board of Veterinary Examiners | |
HB75 | |
HB61 | |
HB85 | |
Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
+ | TELECONFERENCED | ||
*+ | HB 75 | TELECONFERENCED | |
+= | HB 61 | TELECONFERENCED | |
+= | HB 85 | TELECONFERENCED | |
+ | TELECONFERENCED | ||
HB 75-EMPLOYER CONTRIBUTIONS TO PERS 4:04:37 PM CO-CHAIR FIELDS announced that the next order of business would be HOUSE BILL NO. 75, "An Act relating to employer contributions to the Public Employees' Retirement System of Alaska; and providing for an effective date." 4:05:08 PM NEIL STEININGER, Director, Office of Management and Budget, Office of the Governor, introduced HB 75 on behalf of the House Rules Standing Committee, sponsor, at the request of the governor. He characterized the proposed legislation as "fairly narrowly focused" with the intent of giving the state another tool for its financing of retirement on behalf of state employees. He said the cap would be removed on public employee retirement system payroll contributions made by the State of Alaska as an employer. He said this would continue to fund the state's obligations to the Public Employees' Retirement System (PERS) and only employs to the State of Alaska as an employer, rather than apply to other PERS employers. He said it would not impact the teachers' retirement system, change any retirement benefits or employee contributions, or reduce the overall employer contributions. Instead, he said, it would allow the state to "fully cost-share" the cost of retirement contributions for state employees. He said it would reduce general fund expenditures by approximately $25.7 million in fiscal year 2022. 4:07:11 PM The committee took a brief at-ease. 4:07:36 PM MR. STEININGER presented a PowerPoint [hard copy included in the committee packet] and began on slide 3, "HB75 Background: Alaska's Retirement Obligations," which read as follows [original punctuation provided]: ? The PERS unfunded liability was estimated to be $4.6 billion in FY20 ? Current annual cost to pay down the unfunded liability is split between employer contributions and the state assistance payment, or "on-behalf" payment o Employer contributions (22%) on employee salaries mixed fund sources o On-behalf payments for Municipalities and other PERS employers 100% UGF o On-behalf payment for State of Alaska as an employer 100% UGF ? This bill addresses the on-behalf payment for State of Alaska as an employer MR. STEININGER presented slide 4, "State of Alaska PERS On- Behalf Payments," which read as follows [original punctuation provided]: ? In 2008, the legislature established a uniform rate for payroll contributions for all PERS employers 22% ? The State of Alaska is required to pay the difference between capped employer payroll contributions and the full actuarial liability (30.11% in FY22) ? Called the state assistance or "on-behalf" payment ? For FY22, the total on-behalf payment to PERS is $193.5m (UGF) ? $95.7m of that amount is made by the state on behalf of itself ? The remaining $97.8m is made on behalf of 153 other active PERS employers MR. STEININGER presented slide 5, "HB75 State of Alaska as an Employer Retirement Obligation Current Law," which displayed the state payroll contribution of 22 percent of payroll, or $246.3 million. He said that figure includes $106.3 million from the unrestricted general fund (UGF); $30.3 million from the designated general fund (DGF); $73 million from "other" sources; and $36.8 million from federal sources. 4:11:19 PM CO-CHAIR FIELDS asked what DGF sources are. MR. STEININGER replied that DGF sources are any DGF funds that the state is using for payroll. He said the "on-behalf" portion of $95.8 million is also from the unrestricted general fund. 4:11:38 PM MR. STEININGER continued to slide 6, "HB75 State of Alaska as an Employer Retirement Obligation Proposed Law," which displayed graphics showing the state payroll contribution of 30.11% of payroll, totaling $342.2 million. The fund sources, he said, show decrease in funding from UGF and an increase in all other areas of contribution. He said, "This is really where the savings from this concept come from, because it comes from being able to share those costs with these other payers, these other funds that pay for state employees." He pointed out that the "other" category includes "capital improvement program interagency receipts," which are duplicative funds that represent state employees working on capital projects, such as Department of Transportation & Public Facilities (DOT&PF) employees. 4:14:15 PM REPRESENTATIVE SCHRAGE asked for confirmation that DGF fund sources can absorb the increased pull of funds under the proposed legislation. MR. STEININGER pointed out that initial estimates show that almost $55 million in UGF would be saved. He said that in terms of DGF, agencies currently don't collect as much as is spent, so it doesn't make sense to further draw down the fund. The fiscal note, he said, swaps DGF with UGF funds to ensure that programs aren't negatively impacted. 4:15:15 PM CO-CHAIR SPOHNHOLZ asked for an example of an appropriate DGF increase. MR. STEININGER explained that the Alaska Marine Highway System funds pay for other personnel services, but revenue collections for the ferry system can't be increased to meet the increased costs; therefore, he said, the fiscal note must be adjusted. He said the focus was to remain on areas in which an increase in revenues could be implemented to reflect the program costs. CO-CHAIR SPOHNHOLZ summarized her understanding that the intention is to make sure that no programs are negatively impacted; if HB 75 passes, she said, a staggered implementation would allow each program to renegotiate individual contracts. She pointed out that Mr. Steininger had identified the Alaska Marine Highway System as a program that uses DGF and asked for confirmation that he's not proposing a fare increase in order to reduce UGF spending for PERS. MR. STEININGER replied that he was only using the ferry system as an example to show that adding the cost wouldn't be absorbed within current revenue collections. He said he used it as an example of an area in which there has been special care to ensure that programs aren't negatively affected by the proposed legislation; instead, it's simply a back-end financing change to allow more revenue collection from the federal government. CO-CHAIR SPOHNHOLZ asked whether a percentage of the federal highway funds related to the marine highway system's retirement match would come from UGF. MR. STEININGER replied, "That's correct." 4:18:35 PM REPRESENTATIVE MCCARTY asked for clarification on renegotiating contracts. MR. STEININGER responded that the renegotiation would happen within the cost allocation plan agreements, which aren't contracts in the procurement sense but with the federal government. CO-CHAIR SPOHNHOLZ commented that "grant agreement" might be a better term than "contract." 4:19:26 PM MR. STEININGER presented slide 7, "HB75: FY2022 Budget Impact," which displayed the budget impact by fund source and by agency. He pointed out that, since $100 million in state cost is normally included in the language section of the operating budget and shifted into agency budgets, it would appear as an increase in the agency budgets if one were to look at the budget without adjusting for the shift. He clarified that it's not actually an increase in true cost to the agency, it's simply reflecting the cost in the same manner in which it was incurred. He pointed out that agencies with a large number of positions, as well as federal programs, would contribute the majority of UGF savings. He then presented slide 8, "Historical PERS Contribution Rates," which displayed a timeline showing the employer rate of 22 percent contribution versus the variable actuarial rate. He said the volatility of the rate has always been absorbed within the language section of the budget bill in the "on behalf" payments, and this volatility would show up within agency budgets should HB 75 pass. He said the budget system includes a mechanism to respond to the volatility and keep it from impacting state programs. 4:21:56 PM CO-CHAIR SPOHNHOLZ asked why there exists volatility in the actuarial rate. MR. STEININGER explained that volatility is primarily affected by market returns on the fund. The actuarial rate is calculated by looking at how much money is in PERS; whether the fund has met, exceeded, or fell short of projections over the past year; and the projected cost of retirement payments. Once the unfunded liability is determined, he said, it's amortized over 25 years and the actuarial rate is determined. CO-CHAIR SPOHNHOLZ asked whether reducing the unfunded liability would reduce the actuarial rate. MR. STEININGER responded that there was a large deposit to PERS in 2015; while the actuarial rate was already trending down, he said, there was a continued drop after the contribution. Anything that reduces the unfunded liability, whether it be a contribution to PERS or a policy change, he said, would help the actuarial rate. CO-CHAIR SPOHNHOLZ asked for the amount of the deposit. MR. STEININGER replied that it was approximately $3 billion. CO-CHAIR SPOHNHOLZ noted that in 2015 the price of oil was high, and Senate Bill 21 [passed during the Twenty-Eight Alaska State Legislature] had not yet reduced state revenues from the oil industry. She surmised that there is a cost associated with not addressing the unfunded liability. MR. STEININGER expressed that the statement was fair. He noted that there are multiple ways to pay for the state's retirement obligation. CO-CHAIR SPOHNHOLZ said that the unfunded liability is $4.6 billion in fiscal year 2020, so there's a gap. MR. STEININGER replied, "That's correct." CO-CHAIR SPOHNHOLZ clarified that the unfunded liability is in addition to the approximately $16 billion owed to the constitutional budget reserve. She said that while there is currently a statutory permanent fund dividend on the books, there is a structural fiscal gap. 4:26:14 PM CO-CHAIR FIELDS asked for information on any consultations with public employee unions. MR. STEININGER replied that unions were consulted and informed of this policy, and he clarified that HB 75 would not impact benefits or employee contributions because it's entirely a "back end" issue. He said the Alaska Municipal League has been contacted, but this proposed legislation is focused on the State of Alaska as an employer. CO-CHAIR FIELDS suggested hearing testimony from the Alaska State Employees Association. [HB 75 was held over.]