Legislature(2013 - 2014)BARNES 124

03/10/2014 03:15 PM LABOR & COMMERCE

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Heard & Held
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Heard & Held
Scheduled But Not Heard
                 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                                                               
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                                                                         
   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                                                                       
     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                                                               
MS. PIERSON answered  no; that it was basically  a placeholder in                                                               
case the  $3 billion did not  come through that the  governor was                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
REPRESENTATIVE HERRON asked  whether the state would  pay for the                                                               
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                                                               
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                                                               
MS. WASSERMAN indicated she was  unsure what municipalities might                                                               
do.   She  said she  hoped that  municipalities would  not layoff                                                               
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                                                               
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.]                                                                                                         

Document Name Date/Time Subjects
HB316 Supporting Documents-Letter AK Surgery Center 3-05-2014.PDF HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Opposing Documents-Written Testimony-Assorted 3-7-2014.pdf HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Supporting Documents-Letter AK Public Entity Insurance 3-07-2014.pdf HL&C 3/10/2014 3:15:00 PM
HB 316
HB328 Supporting Documents-Written Testimony- Susan Endsley 3-07-2014.pdf HL&C 3/10/2014 3:15:00 PM
HB 328
HB316 Supporting Documents-Letter Anchorage Fracture & Orthopedic Clinic 3-07-2014.PDF HL&C 3/10/2014 3:15:00 PM
HB 316
HB152 Ver C.pdf HL&C 4/5/2013 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 152
HB152 Sponsor Statement ver. C.pdf HL&C 4/5/2013 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 152
HB152 Sectional Analysis.pdf HL&C 4/5/2013 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 152
HB152 Fiscal Note-DOA-DRB-4-03-13.pdf HL&C 4/5/2013 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 152
HB152 Supporting Documents-PERS Employer Salaries FY08 vs. FY12.pdf HL&C 4/5/2013 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 152
HB152 Letter to DOA from Buck Consultants 3-28-2013.pdf HL&C 3/5/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 152
HB152 Draft Proposed Blank CS ver Y.pdf HL&C 3/5/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 152
HB152 Sectional Analysis ver Y.pdf HL&C 3/10/2014 3:15:00 PM
HB 152
HB152 Sponsor Statement ver Y.pdf HL&C 3/5/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 152
HB152 Supporting Documents-Letter City of Fairbanks 3-03-2014.pdf HL&C 3/5/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 152
HB152 Supporting Documents-Letter FNSB 02-28-2014 with Resolution 2014-06.pdf HL&C 3/5/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 152
SB 2
HB152 Supporting Documents-Letter-City of Craig 2-14-14.pdf HL&C 3/5/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 152
HB152 Supporting Documents-Letter-City of Homer 3-03-2014.pdf HL&C 3/5/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 152
HB152 Supporting Documents-Letter-Ketchikan Gateway Borough 2-14-14.pdf HL&C 3/5/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 152
HB152 Supporting Documents-Letter-Muni of Anchorage 2-26-14.pdf HL&C 3/5/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 152
HB152 Supporting Documents-Resolution Denali Borough 12-21.pdf HL&C 3/5/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 152
HB152 Supporting Documents-Resolution FNSB 2013-38.pdf HL&C 3/5/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 152
HB152 Supporting Documents-Resolution Ketchikan Gateway Borough 2316.pdf HL&C 3/5/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 152
HB316 ver N.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Sponsor Statement.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Sectional Analysis.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Fiscal Note-DOLWD-WC-03-03-14.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Fiscal Note-DOA-RM-02-28-14.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Supporting Documents-Letter NFIB 3-5-2014.PDF HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Supporting Documents-Resolution ASHBA.PDF HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Supporting Documents-WC Board Resolution 13-01.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Supporting Documents-WC Fee Comparison.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Supporting Documents-AHLA 3-5-2014.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Supporting Documents-Legislative Research Brief.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Supporting Documents-Letter AK Chamber 03-05-2014.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Supporting Documents-Letter ASHNA 3-4-2014.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Supporting Documents-Letter FNSB 2-28-14.pdf HL&C 3/7/2014 3:15:00 PM
HL&C 3/10/2014 3:15:00 PM
HB 316
SB 2
HB316 Opposing Documents-Email Ron Richards 3-10-2014.pdf HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Draft Proposed CS ver O.pdf HL&C 3/10/2014 3:15:00 PM
HB 316
HB152 DRAFT Fiscal Note to draft blank cs ver Y 2-28-2014.pdf HL&C 3/10/2014 3:15:00 PM
HB 152
HB328 Opposing Documents-Email-Rebecca Albert 03-09-2014.pdf HL&C 3/10/2014 3:15:00 PM
HB 328
HB152 Supporting Documents-Letter City of Ketchikan 3-7-2014.pdf HL&C 3/10/2014 3:15:00 PM
HB 152
HB203 Supporting Documents-Letter AAHU 3-13-2014.pdf HL&C 3/10/2014 3:15:00 PM
HB 203
HB203 Supporting Documents-Written Testimony Lenard Sorrin 3-14-2014.pdf HL&C 3/10/2014 3:15:00 PM
HB 203
HB316 Opposing Documents-Letter AK Medical Assoc 3-12-2014.pdf HL&C 3/10/2014 3:15:00 PM
HB 316
HB316 Supporting Documents-Letter Anchorage Fracture & Orthopedic Clinic 3-12-2014.pdf HL&C 3/10/2014 3:15:00 PM
HB 316