Legislature(2005 - 2006)CAPITOL 17

04/20/2006 09:00 AM RULES

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Time Change --
Moved CSHB 13(RLS) Out of Committee
Moved CSHB 278(RLS) Out of Committee
Bills Previously Heard/Scheduled
HB 278-RETIREMENT SYSTEM BONDS                                                                                                
9:04:36 AM                                                                                                                    
CHAIR ROKEBERG announced  that the first order  of business would                                                               
be HOUSE BILL  NO. 278, "An Act relating to  the Alaska Municipal                                                               
Bond Bank  Authority; permitting  the Alaska Municipal  Bond Bank                                                               
Authority or  a subsidiary of  the authority to assist  state and                                                               
municipal  governmental  employers  by issuing  bonds  and  other                                                               
commercial paper  to enable the governmental  employers to prepay                                                               
all or  a portion  of the governmental  employers' shares  of the                                                               
unfunded accrued actuarial liabilities  of retirement systems and                                                               
authorizing governmental employers to  contract with and to issue                                                               
bonds,  notes,  or  commercial  paper to  the  authority  or  its                                                               
subsidiary  corporation for  that purpose;  and providing  for an                                                               
effective date."                                                                                                                
9:04:51 AM                                                                                                                    
REPRESENTATIVE  HARRIS  moved  to  adopt CSHB  278,  Version  24-                                                               
LS0883\Y, Cook,  4/11/06, as the  working document.   There being                                                               
no objection, Version Y was before the committee.                                                                               
9:05:12 AM                                                                                                                    
REPRESENTATIVE  MIKE HAWKER,  Alaska State  Legislature, sponsor,                                                               
explained that HB 278 authorizes  government workers in Alaska to                                                               
engage in "Pension Obligation Bond"  (POB) transactions.  He said                                                               
that in  a POB transaction money  is borrowed at a  lower rate of                                                               
interest  than  the  money earns  when  invested  within  pension                                                               
funds.   He stated  that the  governmental employer  profits from                                                               
the  difference,   adding  that   this  is  a   "legal  arbitrage                                                               
REPRESENTATIVE HAWKER  went on  to say that  he would  go through                                                               
the sectional  analysis of the  bill and explain changes  made in                                                               
Version Y.  Section 1  applies to the Teachers' Retirement System                                                               
(TRS), adding a new section which  allows employers to pay all or                                                               
a portion of unfunded pension  obligations.  He said that Section                                                               
2  contains  the  majority  of changes  from  the  House  Finance                                                               
Committee  Substitute.    He  said  that  this  section  improved                                                               
readability  by replacing  "bonds,  notes,  commercial paper,  or                                                               
other obligations" with "obligations,"  and added a definition of                                                               
"obligations"  which includes  these instruments.   In  addition,                                                               
Version Y  removes language  that would be  covered in  the funds                                                               
diversion agreement.                                                                                                            
REPRESENTATIVE   HAWKER  said   that   Sections  3   and  4   add                                                               
facilitating language  to the accounting statutes  for the Public                                                               
Employees'  Retirement  System  (PERS).     Section  5  parallels                                                               
Section 1  of the bill  and applies to  PERS.  He  explained that                                                               
Section  6 adds  to the  statutory policies  established for  the                                                               
Municipal  Bond Bank  Authority.   He pointed  out that  the bond                                                               
bank   should  provide   the   lowest   rates  possible   without                                                               
subsidizing  the employers  beyond  their means.    Moving on  to                                                               
Section 7,  he said that  this section  applies to the  powers of                                                               
the bond  bank, and allows the  bond bank to create  a subsidiary                                                               
organization  for  the  purpose  of  facilitating  municipal  POB                                                               
transactions, if appropriate.                                                                                                   
REPRESENTATIVE HAWKER  continued with Section  8 that adds  a new                                                               
statute defining the powers of  the Municipal Bond Bank Authority                                                               
when handling  POB transactions.   This includes  guidelines such                                                               
as:   providing assistance to employers,  performing duties which                                                               
are  necessary,   and  authorizing  the  issuance   of  debt  and                                                               
obligations  for  these   purposes.    He  said   that  POBs  are                                                               
substituting  a "hard  debt"  for a  "soft  debt," and  expressed                                                               
disagreement with this term.   He stated that pension obligations                                                               
are contractual obligations, and are  considered a debt.  He said                                                               
that  if the  debt is  transferred  to the  Municipal Bond  Bank,                                                               
there are  limitations on the  amount of  debt the bond  bank may                                                               
issue.    Section 9  exempts  POBs  from  the current  limit  for                                                               
revenue  bonds.   He  explained that  Section  10 authorizes  the                                                               
Municipal Bond Bank  to issue POBs, while Section  11 "raises the                                                               
cap" on debt other than revenue bonds.                                                                                          
REPRESENTATIVE HAWKER said that Section  12 adds a definition for                                                               
"government employer."   He  noted that  the House  State Affairs                                                               
Committee  and  the House  Finance  Committee  both held  several                                                               
hearings  on the  bill.   Most of  the changes  in Version  Y, he                                                               
said, are to make the bill readable.                                                                                            
9:12:21 AM                                                                                                                    
REPRESENTATIVE BERKOWITZ referred  to line 1 of  the title, which                                                               
reads  "An  Act  relating  to accrued  actuarial  liabilities  of                                                               
government systems;" and asked Representative  Hawker if he would                                                               
object to removing it.                                                                                                          
REPRESENTATIVE  HAWKER said  that he  would be  amenable to  that                                                               
CHAIR ROKEBERG  opined that a  little "wordsmithing"  may improve                                                               
this, as  the bill specifically applies  to POBs and is  not "re-                                                               
writing the entire pension system."                                                                                             
REPRESENTATIVE  HAWKER said  that the  aforementioned section  of                                                               
the title is not "a necessary component."                                                                                       
9:13:44 AM                                                                                                                    
The committee took an at-ease from 9:13 a.m. to 9:14 a.m.                                                                       
REPRESENTATIVE  BERKOWITZ   moved  Conceptual  Amendment   1,  as                                                               
     Page 1, line 1:                                                                                                            
      Delete "relating to accrued actuarial liabilities of                                                                    
     government retirement systems;"                                                                                          
REPRESENTATIVE  HARRIS  objected  for discussion  purposes.    He                                                               
stated that this  language applies to PERS and  TERS and reflects                                                               
the purpose of the bill.                                                                                                        
REPRESENTATIVE  BERKOWITZ replied  that page  1, line  6 contains                                                               
the  appropriate  information.    He said  that  leaving  in  the                                                               
language which  he wanted to  delete would leave the  title open-                                                               
9:15:20 AM                                                                                                                    
REPRESENTATIVE HAWKER stated that  he concurs with Representative                                                               
Berkowitz's conclusion.  He pointed  out that HB 278 specifically                                                               
authorizes [POB]  transactions.  Referring  to lines 7-10  of the                                                               
title,  he stated  that "authorizing  a governmental  employer to                                                               
issue obligations  to prepay"  and "enter into  a lease  or other                                                               
contractual  agreement with  a trustee  or  the Alaska  Municipal                                                               
Bond Bank Authority  or a subsidiary" is the "meat  of the bill."                                                               
He said,  "Although [HB 278]  is a  means to address  the accrued                                                               
actuarial liabilities of government  retirement systems, the bill                                                               
itself really  does not  relate to  those liabilities;  it really                                                               
relates to  the ability and  power of governments to  address the                                                               
REPRESENTATIVE HARRIS withdrew his objection.                                                                                   
REPRESENTATIVE  ROKEBERG   noted  that   there  was   no  further                                                               
objection  to Conceptual  Amendment 1,  and therefore  Conceptual                                                               
Amendment 1 was adopted.                                                                                                        
9:16:13 AM                                                                                                                    
CHAIR ROKEBERG, in regard to  the current limit on revenue bonds,                                                               
asked if the  establishment of a subsidiary avoids  the "cap," or                                                               
if avoiding the "cap" is necessary to establish a subsidiary.                                                                   
REPRESENTATIVE HAWKER replied that the  subsidiary is part of the                                                               
Bond  Bank  Authority, and  its  debt  is  within the  Bond  Bank                                                               
Authority's  overriding "caps."   He  said "The  intent here  was                                                               
[that] the  ... Pension Obligation  Bond issues ... would  not be                                                               
charged against the  current cap of the ability of  the bond bank                                                               
to service community needs."                                                                                                    
CHAIR ROKEBERG  asked what political subdivisions  are authorized                                                               
to do this.                                                                                                                     
REPRESENTATIVE  HAWKER said  this is  defined on  page 11,  under                                                               
Section 12 of Version Y, which reads:                                                                                           
          (8) "governmental employer" means the State of                                                                        
     Alaska or  a municipality  or other state  or municipal                                                                    
     governmental  entity  within  the state,  including  an                                                                    
     agency,  instrumentality,  district,  school  district,                                                                    
     public  corporation,  department,  division,  or  other                                                                    
     subdivision of the  state or of a  municipality, in its                                                                    
     capacity as an employer.                                                                                                   
REPRESENTATIVE HAWKER  relayed that  the intent in  drafting this                                                               
was  to  be as  broad  as  possible  in  order to  encompass  all                                                               
governmental employers  participating in  either the PERS  or TRS                                                               
systems.    Earlier  versions, he  explained,  had  included  the                                                               
University of Alaska  in that definition as  per the university's                                                               
request.  He  remarked that this inclusion  was removed, however,                                                               
per the request of Representative  Weyhrauch and through the vote                                                               
of the House  Finance Committee.  In response  to Chair Rokeberg,                                                               
he said he could not recall the rationale behind this.                                                                          
CHAIR  ROKEBERG   sought  confirmation  that  the   Alaska  State                                                               
Constitution prohibits the state,  as a governmental entity, from                                                               
issuing POBs.                                                                                                                   
REPRESENTATIVE HAWKER  related his understanding that  the Alaska                                                               
State  Constitution   specifically  prohibits  the   issuance  of                                                               
general  obligation  bonds for  any  purpose  other than  capital                                                               
projects, which  still requires a  vote of the people.   However,                                                               
he  explained that  even  the  people cannot  vote  on a  general                                                               
obligation  bond proposition  for the  purpose of  satisfying the                                                               
pension obligations.  He highlighted  that this is fairly typical                                                               
across the  country in different  state constitutions.   However,                                                               
the capital markets, he said,  have created many other mechanisms                                                               
that  allow [states]  to "sidestep"  their  constitutions on  the                                                               
issuance of  debt in the  state:  certificates  of participation,                                                               
contracts, leases,  and other creative financing  mechanisms.  He                                                               
informed  the committee  that  the  current state  administration                                                               
opposes  the use  of pension  obligation bonds  and opposes  this                                                               
bill.    He opined  that  "...  just because  the  administration                                                               
opposes  something, is  no reason  for us  to adopt  their policy                                                               
decision.   There  has been  overwhelming  proof that  this is  a                                                               
responsible, functional  mechanism that  can be utilized."   This                                                               
bill, he  explained, has been  brought forward at the  request of                                                               
municipal  employers  who  want  the opportunity  to  review  the                                                               
options.    Additionally,  he  relayed   that  the  Alaska  State                                                               
Constitution  also  prohibits  municipal  entities  from  issuing                                                               
general  obligation   bonds  for  anything  other   than  capital                                                               
projects.     These  entities,  he  explained,   "would  have  to                                                               
structure their transactions using  one of these alternative debt                                                               
mechanisms   that  'sidesteps'   the   general  obligation   bond                                                               
REPRESENTATIVE  BERKOWITZ  asked  whether  it  is  Representative                                                               
Hawker's  position   that  the  pension  obligation   bond  isn't                                                               
"contemplated in the constitution."                                                                                             
REPRESENTATIVE HAWKER noted  that the concept of POBs  was not in                                                               
existence when the Alaska State Constitution was drafted.                                                                       
REPRESENTATIVE HARRIS  opined that  regardless of the  means used                                                               
[to pay down the unfunded  liability], "the full faith and credit                                                               
of the State  of Alaska has to  fall behind the debt  that we owe                                                               
to the employees ... to pay  to them at their times of retirement                                                               
and for healthcare."                                                                                                            
9:21:53 AM                                                                                                                    
REPRESENTATIVE   HAWKER,   upon   stating  his   agreement   with                                                               
Representative  Harris, said  that  the state  has a  contractual                                                               
obligation to  its employees and that  "one way or the  other, we                                                               
owe money  to the  pension fund."   He  then clarified  that this                                                               
bill only empowers municipal  employers or governmental employers                                                               
to  "pursue transactions"  and  does not  authorize  or commit  a                                                               
transaction.   Furthermore, he said,  there is no  consequence to                                                               
the bill unless a municipal  entity "would choose to avail itself                                                               
of additional clarification of their authorities."                                                                              
9:23:05 AM                                                                                                                    
CHAIR ROKEBERG closed public testimony of HB 278.                                                                               
9:23:16 AM                                                                                                                    
REPRESENTATIVE HARRIS  asked Representative  Hawker if  there was                                                               
opposition  to  the bill  in  the  House Finance  Committee  that                                                               
required it  be pared  down or simply  that more  information had                                                               
been learned to merit a change.                                                                                                 
REPRESENTATIVE  HAWKER   clarified  that  the  bill   passed  out                                                               
unanimously from  the House Finance  Committee and  recalled that                                                               
there  were several  "do passes"  from that  committee.   He then                                                               
referred  to the  title  change and  said  that given  "municipal                                                               
governments already  have the implied authority  to perform these                                                               
transactions by themselves,"  it was decided to make  a change to                                                               
"allow a municipality with its own  [means to] pursue them on its                                                               
9:25:15 AM                                                                                                                    
REPRESENTATIVE  HARRIS asked  whether  there  was anyone  present                                                               
from the bond bank to testify and, if so, were they opposed.                                                                    
REPRESENTATIVE HAWKER  relayed that in the  initial conversations                                                               
with  the bond  banks he  concluded  that "they  do what  they're                                                               
told."  He explained that  they were told that the administration                                                               
would  be opposed  to [POBs],  but never  expressed any  problems                                                               
with the way the bill is structured.                                                                                            
REPRESENTATIVE  GUTTENBERG addressed  one  of the  topics in  the                                                               
bill which  is the unfunded  liability in addition to  the rising                                                               
health  care  costs.    He  opined that  addressing  these  is  a                                                               
significant part  of the  problem as  well as  controlling rising                                                               
REPRESENTATIVE  HARRIS expressed  his belief  that this  bill has                                                               
nothing to  do with  the rising  cost of health  care or  that it                                                               
will ever affect it.  He  said that different legislation as well                                                               
as the cooperative efforts from  the medical community, insurance                                                               
community,  and other  entities  will need  to  work together  to                                                               
address this.                                                                                                                   
CHAIR  ROKEBERG recommended  the committee  read the  new [Alaska                                                               
Retirement  Management Board's]  recommendations to  overcome the                                                               
$6.9 billion obligation.                                                                                                        
9:27:40 AM                                                                                                                    
REPRESENTATIVE BERKOWITZ  surmised that if they  hadn't taken out                                                               
the first line of the bill's  title, they could be speaking about                                                               
health  care  costs  as  a   driving  component  of  the  accrued                                                               
actuarial liabilities  of the  government retirement  system; "We                                                               
could have been  talking about all the drivers, here."   He added                                                               
that he likes  the bill and although he thinks  that they need to                                                               
address the other components, doing  so at this time could create                                                               
difficulties  [in passing  the bill].    Thus, he  said he  would                                                               
prefer to keep the bill as focused as much as possible.                                                                         
REPRESENTATIVE HARRIS  offered his  understanding that  they have                                                               
attempted to  address this  issue, though it  has not  been easy,                                                               
and that it is an issue that  the whole country has to address as                                                               
REPRESENTATIVE  HAWKER remarked  that  this bill  is intended  to                                                               
address  just  one aspect  of  the  bigger issue,  and  expressed                                                               
appreciation that  the committee is  not seeking to  overload the                                                               
bill.   "Universal  tools  are  never really  good  at doing  any                                                               
single job, we need to  have good, point-specific tools, and this                                                               
is one of them," he opined.                                                                                                     
9:29:23 AM                                                                                                                    
REPRESENTATIVE  GUTTENBERG  noted that  he  has  seven pieces  of                                                               
legislation dealing with prescription drug  costs and yet none of                                                               
those of those bills has had a hearing.   He went on to say:  "We                                                               
need to start dialoging, it needs  to be happening; it's not only                                                               
for the unfunded  liability but for the citizens of  the state of                                                               
Alaska - it's just something that  we're remiss [in] if we're not                                                               
addressing it whatever the political pressure of it ...."                                                                       
9:29:52 AM                                                                                                                    
REPRESENTATIVE  HARRIS  moved to  report  CSHB  278, Version  24-                                                               
LS0883\Y,  Cook,  4/11/06,  as  amended, out  of  committee  with                                                               
individual  recommendations and  the  accompanying fiscal  notes.                                                               
There being  no objection,  CSHB 278(RLS)  was reported  from the                                                               
House Rules Standing Committee.                                                                                                 

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