Legislature(2005 - 2006)CAPITOL 106
02/21/2006 08:00 AM STATE AFFAIRS
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
HB 375-RETIREMENT BENEFIT LIABILITY ACCT/PF [Contains discussion of HB 376, HB 377, and HB 238.] 8:23:42 AM CHAIR SEATON announced that the next order of business was HOUSE BILL NO. 375, "An Act relating to the retirement benefit liability account and appropriations from that account; relating to deposits of certain income earned on money received as a result of State v. Amerada Hess, et al., 1JU-77-847 Civ. (Superior Court, First Judicial District); and providing for an effective date." 8:24:11 AM REPRESENTATIVE BRUCE WEYHRAUCH, Alaska State Legislature, introduced HB 375 as sponsor. He noted that the bill had been introduced by and first heard in the House Special Committee on Ways and Means as part of a group of bills that dealt with the unfunded liability in the public employees' retirement system (PERS) and the teachers' retirement system (TRS). He said HB 375, 376, and 377 all dealt with unfunded liability, the latter dealing with a $340 million appropriation to PERS and TRS to aid in reducing the unfunded liability. The other two bills would have established a mechanism to take money from the Alaska Housing Finance Corporation (AHFC) dividend and the Amerada Hess funds in the permanent fund and put them into a liability account proposed in HB 375. He continued: What the committee basically recognized is that because of the political machinations associated with the use of those funds ..., probably the best thing to do was to establish the fund first so that if there [were] any funds that were to be appropriated to address the PERS and TRS liability ..., the money would be used for that purpose. REPRESENTATIVE WEYHRAUCH noted that the last section of the bill addresses Title 39 of PERS and Title 14 of TRS. He continued: So, ... this bill ... does not set up a designated account, because those are unconstitutional. It does set up an account, though, that money can be paid into for payment of the unfunded liability for those two ... retirement systems. REPRESENTATIVE WEYHRAUCH said the account would be somewhat similar to Alaska's public education fund. 8:26:08 AM CHAIR SEATON asked if it would be left up to the administration to determine payments out of the account. 8:26:37 AM REPRESENTATIVE WEYHRAUCH said the legislature would appropriate money out into the account that would be used for payment of those funds. The administration, he said, would have a voice in the process. 8:27:10 AM CHAIR SEATON explained that he is weighing this bill in relationship to HB 238, the latter of which established a specific mechanism for a payment schedule and "how that went through communities." He surmised, "Under this system we don't say how that will be done; we would just set it up, and then the administrator of the [Division of] Retirement & Benefits could pick the winners or the losers ...." 8:27:19 AM REPRESENTATIVE WEYHRAUCH responded, "That's correct; it leaves it discretionary." 8:27:34 AM CHAIR SEATON noted that HB 375 would allow the money to go to school districts. 8:27:37 AM REPRESENTATIVE WEYHRAUCH confirmed that's correct. 8:27:43 AM REPRESENTATIVE GATTO, regarding the fiscal note for HB 375, offered his understanding that school districts would get help to pay off their PERS/TRS liability. He said the state already does that. He clarified, "Whenever we allocate the money for education it includes a whopping portion to help the districts pay off their PERS/TRS. So, this is in addition to that." 8:28:18 AM REPRESENTATIVE WEYHRAUCH said the money in the fund could be used in addition to that, and the appropriation bill - if approved without amendment - would appropriate roughly $300 million into TRS. The legislature on it's own could appropriate additional funds into those systems, he said. He concluded, "So, the answer to your question is yes." 8:28:36 AM REPRESENTATIVE GATTO said the proposed bill would put a burden on Amerada Hess earnings, when there are other people looking toward that fund. He suggested that if the goal is to help school districts with their PERS/TRS liability, "why not just take the governor's $90 million and make it ... whatever number's appropriate to include this, rather than go after this individual fund?" 8:29:26 AM REPRESENTATIVE WEYHRAUCH noted that the bill in its original form would have used funds from Amerada Hess and AHFC dividend; however, the current version of the bill does not recommend using pools of money from those either of those funds. He explained that he mentioned those funds in his introduction to give a history of the bill. He said, "The intent of the [House Special Committee on Ways and Means] in moving this bill in its form out to [House State Affairs Standing Committee] was to indicate that there's no specific fund or monies identified that would go into this fund whatsoever." He added that those funds could be used to appropriate money into the fund; however, that is a broader legislative determination that would be made "down the line" that has nothing to do with the establishment of this fund. 8:30:18 AM REPRESENTATIVE GATTO asked if the House Special Committee on Ways and Means has heard requests for Amerada Hess money. 8:30:40 AM REPRESENTATIVE WEYHRAUCH answered no. He said after the House Special Committee on Ways and Means held meetings around the state [during the 2005 interim], it became apparent that there is a huge unfunded liability that needs to be addressed in order to help local communities, local governing bodies, and school districts with their financial situation. Another signal coming from the administration, he noted, was that a recurring source of revenue needed to be found to address those unfunded liabilities in the local entities' PERS and TRS systems. He stated that the only source of recurring revenue Alaska has is oil revenue from the North Slope, certain small tax revenues, and interest on income earned on existing accounts such as the Constitutional Budget Reserve (CBR), the permanent fund, and existing PERS and TRS accounts. The only other recurring sources that were identified through the committee process were either to make a direct appropriation from the legislature, which uses recurring sources of revenue, or to use funds from Amerada Hess or the AHFC dividend - both recurring sources of revenue. Representative Weyhrauch said it also became apparent that to identify specifically those pools of money created broader political and policy issue and would have weighed the bill down. 8:31:52 AM REPRESENTATIVE GARDNER suggested that since the fiscal note still includes mention of Amerada Hess, an updated fiscal note may be needed. 8:32:26 AM REPRESENTATIVE WEYHRAUCH said he anticipates that the fiscal note will be changed in the next committee of referral. 8:32:46 AM REPRESENTATIVE GRUENBERG referred to [subsection (b) in Section 1, on page 1, lines 8-12 of the bill, which read as follows: (b) Money in the retirement benefit liability account may be appropriated to the state and political subdivisions of the state, including regional educational attendance areas, for employer contributions to pay past service liabilities of the public employees' retirement system and the teachers' retirement system. Income earned on money in the account may be appropriated to the account. REPRESENTATIVE GRUENBERG asked why a limitation was being made to employer contributions, past liabilities, and service liabilities, instead of broadening the language to say just liabilities. REPRESENTATIVE WEYHRAUCH responded that the past service liability is primarily what has lead to the unfunded liability in the existing system. 8:33:49 AM REPRESENTATIVE GRUENBERG said he understands that; however, he explained the reason for changing the language to the broader term of "liabilities" would be to take into consideration that the legislature is incapable of determining all the future needs and benefits of the fund. He said it would give the legislature more flexibility. 8:34:10 AM REPRESENTATIVE WEYHRAUCH, in response to a question from Representative Gruenberg, said he would not oppose such an amendment. 8:34:33 AM CHAIR SEATON opened public testimony. 8:34:53 AM KEVIN RITCHIE, Alaska Municipal League (AML), stated that [the unfunded liability] truly is a big problem. It is higher in some communities than in others. The only two choices available on the local level, he relayed, is to raise taxes or to cut services. He said probably 50 percent of a boroughs appropriation goes to schools. He stated, "The only reason that we're asking for state assistance in this problem is simply [that] that's what states are set up to do. And in this particular case, we're very lucky that the state has vastly superior revenue sources to help out the problem ...." In most communities, he said, taxes have been rising steadily. This year, the State Chamber of Commerce has adopted addressing the PERS/TRS and community dividend problems as two of its top six business issues. 8:37:02 AM MR. RITCHIE, responding to a previous question from Representative Gatto, said the state is putting money into school districts each year, but the problem is bigger than is visible on the surface. He offered a comparison of a home loan and only putting part of the money needed each year to pay off the home loan. He continued: I've been sitting with the Alaska Retirement Management Board, and I think the way they're looking at the problem is we're doing two things at the same time. One is: the annual appropriations are keeping that immediate level of percent of salary contributions suppressed, so we're not feeling the impact of that. But essentially it's kind of like we're, at the same time, putting money in to the system to pay off some of that liability - it sort of shaves off the top of the mountain, so you don't end up rising as high in the future. MR. RITCHIE said the bill is a vessel and, from that standpoint, he said he thinks it's a "very good first step." CHAIR SEATON asked Mr. Ritchie if AML has any questions regarding leaving the appropriation up to administrative determination. 8:39:41 AM MR. RITCHIE said it's a tough issue. He said school districts are all in one big program, but in municipalities, some communities will have significantly higher liabilities than others. He reminded the committee that when a number, such as $6 billion in liability is comprised of the individual liabilities of 120 cities and boroughs that are added together. He said the formula has not been figured out yet as to "how do you achieve the goal of not burdening citizens [who] really had no part in making this problem?" He emphasized AML's desire to be involved in that discussion. 8:41:24 AM CHAIR SEATON said there has been a suggestion to take out the specificity of the past service cost liability, which could mean money could be distributed - not based on the past vagrancies of the state system that had contribution rates that weren't enough to pay for past liabilities - to communities that don't have a past service cost or don't have an unfunded liability. He asked Mr. Ritchie, "Would you see that as positive or as a negative in trying to get over this?" He clarified that in one way the money would be spread to a lot of different communities that don't have a past service cost, but then there will be less money to address those unfunded liabilities. He said, "I'm trying to figure out where AML would come down on whether you want to keep this to addressing the hole that has been dug by the system, or whether you want to allow it to be just address the system liabilities, which could include normal cost rates." 8:42:48 AM MR. RITCHIE said that he appreciated the flexibility for the future. He pointed out that if the state paid the past service liability, the $6 billion debt, "we'd be fine." In other words, he explained, it makes more sense to target the [$6 billion] problem and use legislation to address problems that arise in the future. 8:43:55 AM CHAIR SEATON, upon determining that no one else wished to testify, closed public testimony. 8:44:03 AM REPRESENTATIVE GRUENBERG said that due to testimony by Mr. Ritchie, he would not offer the amendment. 8:44:59 AM CHAIR SEATON commented that this legislation is similar to HB 238, and therefore if the committee would like to forward it from committee, he would not object. However, he said he would be happy to hold the legislation for further consideration if the committee so desires. 8:46:08 AM REPRESENTATIVE GATTO moved to report CSHB 375(W&M) out of committee with individual recommendations and the accompanying fiscal note that will be modified. There being no objection, CSHB 375(W&M) was reported out of the House State Affairs Standing Committee.