Legislature(2005 - 2006)CAPITOL 106

01/26/2006 08:00 AM STATE AFFAIRS

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08:05:58 AM Start
08:06:50 AM HB349
08:35:58 AM HB273
09:45:44 AM Confirmation Hearing(s): || Commissioner, Department of Administration
09:46:03 AM Lieutenant Governor Designee
09:46:16 AM Alaska Public Offices Commission (apoc)
09:46:46 AM HB278
10:05:06 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Moved CSHB 273(STA) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved Out of Committee
<Continued from 01/24>
Confirmation Hearings
Commissioner, Dept. of Administration
Lieutenant Governor Designee
Alaska Public Offices Commission (APOC)
HB 278-RETIREMENT SYSTEM BONDS                                                                                                
9:46:46 AM                                                                                                                    
CHAIR SEATON announced that the  last order of business was 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."                                                                                                                
CHAIR SEATON  noted that  included in the  committee packet  is a                                                               
memorandum  from Tamara  Cook,  Director,  Legal Services,  dated                                                               
1/6/06, and he asked the sponsor of the bill to address it.                                                                     
9:46:58 AM                                                                                                                    
REPRESENTATIVE MIKE HAWKER, Alaska  State Legislature, as sponsor                                                               
of  HB  278, stated  that  the  memorandum  is  a response  to  a                                                               
question  from Representative  Weyhrauch regarding  whether state                                                               
law   prevents  municipalities   from   issuing  pension   bonds.                                                               
Representative  Hawker interpreted  Ms. Cook's  response to  mean                                                               
that there  are prohibitions in the  constitution; however, other                                                               
structures exist  that may very well  meet constitutional muster.                                                               
He said  he suspects  Ms. Cook's answer  was generic  because she                                                               
did  not  have any  specific  proposal  before her  to  evaluate.                                                               
Furthermore,  the   bill  does   not  contemplate   any  specific                                                               
9:49:33 AM                                                                                                                    
REPRESENTATIVE  HAWKER said  that based  on the  concerns of  the                                                               
House  State Affairs  Standing Committee  and a  request made  by                                                               
Chair Seaton, he did some  research and developed an amendment to                                                               
ensure that  smaller municipalities  could band together  and not                                                               
be  excluded.   He said  he  learned from  Legislative Legal  and                                                               
Research    Services    that    AS    29.35.010(13)    authorizes                                                               
municipalities to enter into cooperative  agreements.  Section 13                                                               
read as follows:                                                                                                                
          (13) to enter into an agreement, including an                                                                         
     agreement  for cooperative  or joint  administration of                                                                    
     any function  or power with a  municipality, the state,                                                                    
     or the United States;                                                                                                      
REPRESENTATIVE  HAWKER  encouraged  the committee  to  reach  the                                                               
conclusion that he  has reached:  an amendment  is not necessary,                                                               
as the power  exists in current statute  [to allow municipalities                                                               
to  enter  into  cooperative agreements  for  pension  obligation                                                               
bonds (POBs)].                                                                                                                  
9:51:29 AM                                                                                                                    
REPRESENTATIVE  GRUENBERG,  referring   back  to  the  previously                                                               
mentioned legal  memorandum, said by "reading  between the lines"                                                               
he believes Ms.  Cook is saying that  municipalities cannot issue                                                               
general  obligation  bonds,  but  could  issue  moral  obligation                                                               
bonds.     He  asked  Representative   Hawker  if  that   is  his                                                               
9:52:13 AM                                                                                                                    
REPRESENTATIVE HAWKER responded as follows:                                                                                     
     If you  were [implying] a specific  limitation to moral                                                                    
     obligation  debt,  I  don't believe  that's  a  correct                                                                    
     statement.  I believe there  would be a variety of debt                                                                    
     vehicles to which she would be inferring in this ....                                                                      
REPRESENTATIVE HAWKER  said he is  hesitant to  provide testimony                                                               
regarding  the  intent  of  someone else's  work  product.    His                                                               
interpretation,  he  said,  is   that  there  are  constitutional                                                               
prohibitions against specific forms of  debt, but there are other                                                               
forms of  debt available  that would  be constitutional  and have                                                               
been  proven already  with precedent  established  in the  Alaska                                                               
Court System.                                                                                                                   
9:53:03 AM                                                                                                                    
REPRESENTATIVE GRUENBERG  offered his understanding  that general                                                               
obligation (GO) bonds are specifically prohibited.                                                                              
9:53:15 AM                                                                                                                    
REPRESENTATIVE HAWKER concurred  that "general obligation bonding                                                               
by the State of Alaska would be inappropriate and unacceptable."                                                                
9:53:40 AM                                                                                                                    
REPRESENTATIVE GRUENBERG added, "Or a political subdivision."                                                                   
9:53:50 AM                                                                                                                    
REPRESENTATIVE HAWKER answered yes.                                                                                             
9:53:55 AM                                                                                                                    
CHAIR SEATON  cited a sentence  in the  memorandum at the  end of                                                               
paragraph 3, which read:                                                                                                        
     Other  exceptions to  the  restraint  on borrowing  are                                                                    
     found in Art. IX, sec. 11,  but it is not obvious to me                                                                    
     how  these exceptions  might be  used  to fund  pension                                                                    
CHAIR SEATON advised  the committee that that remark  by Ms. Cook                                                               
raises some  flags, and he said  he thinks it might  be necessary                                                               
to  get further  [legal] clarification  as the  bill moves  along                                                               
through the process.                                                                                                            
CHAIR SEATON directed attention to page  7, line 24, of the bill,                                                               
which [with the preceding lines 21-23] read:                                                                                    
          (a) Subject to AS 44.85.100(b), the bond bank                                                                         
     authority  may issue  its bonds  or notes  in principal                                                                    
     amounts that  it considers  necessary to  provide funds                                                                    
     for any purposes under this chapter, including                                                                             
               (1) the purchase of municipal bonds                                                                              
CHAIR  SEATON said  he  thought the  Alaska  Municipal Bond  Bank                                                               
Authority   ("Bond   Bank")  issued   bonds.      He  asked   for                                                               
9:55:37 AM                                                                                                                    
REPRESENTATIVE HAWKER  explained that that language,  which is in                                                               
Section  5  of the  bill,  is  not  new  statute and  amends  the                                                               
language on page 8, lines 5-7, which read as follows:                                                                           
               (5) assisting governmental employers to                                                                      
     prepay all or a portion  of their share of the unfunded                                                                
     accrued  actuarial liabilities  of retirement  systems,                                                                
     with  security as  the  bond  bank authority  considers                                                                
9:56:09 AM                                                                                                                    
CHAIR SEATON  directed attention to  page 8, subsection  (c), the                                                               
original  language   of  which  shows  a   bonding  authority  of                                                               
$500,000,000.  He interpreted the  new language in the subsection                                                               
to mean  "there's no  limit at  all."  The  new language  read as                                                               
     This subsection  does not apply  to (1) bonds  or notes                                                                
     issued to  fund or  refund bonds  or notes;  (2) bonds,                                                                
     notes, commercial  paper, and other  obligations issued                                                                
     under AS 44.85.086 or 44.85.180(a)(5).                                                                                 
9:56:33 AM                                                                                                                    
REPRESENTATIVE  HAWKER  indicated that  there  are  no limits  in                                                               
regard  to refunding  or obligations  issued  under the  statutes                                                               
previously noted  in subsection  (c).   In regard  to aggregating                                                               
pension liabilities,  he said,  "The best  execution would  be if                                                               
municipalities   chose  to   come  together   and  place   larger                                                               
securities on the market and  get a much more efficient execution                                                               
with a ... greater ultimate savings to the issuer."                                                                             
9:57:20 AM                                                                                                                    
CHAIR SEATON  recalled that the  Department of  Revenue testified                                                               
to the committee  that the moral bonding  authority was "somewhat                                                               
south of  $6 billion."   He  said, "So, maybe  as this  goes into                                                               
[the House  Finance Committee] you  can see whether we  want this                                                               
unlimited  amount, which  could be  more than  the moral  bonding                                                               
authority of the state."                                                                                                        
9:57:49 AM                                                                                                                    
REPRESENTATIVE HAWKER stated for the  record that he is committed                                                               
to getting  a thorough review  and analysis by the  Department of                                                               
Law, the Department  of Revenue, the Bond Bank,  and outside bond                                                               
counsel and  authorities to ensure that  the financial management                                                               
aspect of the bill will be strongly addressed.                                                                                  
9:58:51 AM                                                                                                                    
CHAIR SEATON  referred to  a sentence  in Ms.  Cook's memorandum,                                                               
which read:                                                                                                                     
     Art. IX,  sec. 9  states in  full:   "No debt  shall be                                                                    
     contracted by  any political subdivision of  the State,                                                                    
     unless  authorized  for  capital  improvements  by  its                                                                    
     governing  body  and ratified  by  a  majority vote  of                                                                    
     those qualified to vote and voting on the question."                                                                       
CHAIR SEATON indicated that he  does not see that issue addressed                                                               
anywhere in the bill "one way or  the other."  He stated the need                                                               
to find out if that requirement is in place or exempted.                                                                        
9:59:43 AM                                                                                                                    
REPRESENTATIVE   GRUENBERG  said   he  doesn't   see  any   legal                                                               
requirement "that this be approved by  a vote of the people."  He                                                               
mentioned an  amendment could be  offered "to do that"  and asked                                                               
Representative Hawker if he would object.                                                                                       
10:00:13 AM                                                                                                                   
REPRESENTATIVE  HAWKER reiterated  his  sincere  belief that  the                                                               
existing  statutory  regulatory  structure,   as  it  applies  to                                                               
municipalities  and  the authorities  the  state  vests in  those                                                               
municipalities,  is  adequate  and  provides  appropriate  public                                                               
protections.  He continued:                                                                                                     
     Certainly we've discussed the  possibility of a broader                                                                    
     authority  being extended,  specifically for  this type                                                                    
     of  transaction,  through  a  constitutional  amendment                                                                    
     process to  a general obligation  bond.  ...  I believe                                                                    
     the subject and the  question you're broaching would be                                                                    
     best  discussed in  that context  rather  than in  this                                                                    
     context, which  is where we  are definitely  not making                                                                    
     any changes in our current constitutional authorities.                                                                     
10:01:27 AM                                                                                                                   
REPRESENTATIVE GRUENBERG said he is  looking into the drafting of                                                               
a  constitutional amendment.   He  said he  was concentrating  on                                                               
amending the article  dealing with state contraction  of debt and                                                               
he  had  not looked  as  much  at the  constitutional  provisions                                                               
regarding  the  local contracting  of  debt.   He  mentioned  the                                                               
concept  of  putting  both  those issues  together  in  the  same                                                               
10:02:12 AM                                                                                                                   
CHAIR SEATON suggested  that, in the interest of  time, the issue                                                               
be brought up  at another time.  He stated  his concern regarding                                                               
hard debt  versus soft  debt in  relation to  pension bonds.   He                                                               
said the  committee was been  told that the  hard debt is  a debt                                                               
obligation.   He  said, "I  don't want  this to  end up  in court                                                               
later as to whether  it should be a vote or not."   He stated his                                                               
desire to  get a full legal  opinion as to whether  pension bonds                                                               
would be exempt from the requirement of a vote of the people.                                                                   
10:03:36 AM                                                                                                                   
REPRESENTATIVE GRUENBERG moved to report HB 278 out of committee                                                                
with individual recommendations and the attached fiscal note.                                                                   
10:03:56 AM                                                                                                                   
REPRESENTATIVE HAWKER noted that he had not received a copy of                                                                  
the fiscal note.                                                                                                                
10:04:26 AM                                                                                                                   
CHAIR SEATON asked if there was any objection.  There being                                                                     
none, HB 278 moved out of the House State Affairs Standing                                                                      

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