Legislature(2005 - 2006)CAPITOL 106

02/21/2006 08:00 AM STATE AFFAIRS

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Confirmation Hearing - Public Defender TELECONFERENCED
Moved Out of Committee
Moved Out of Committee
Scheduled But Not Heard
+ Bills Previously Heard/Scheduled TELECONFERENCED
Heard & Held
Heard & Held
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                                                               
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                                                               
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                                                               
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                                                               
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.                                                                                                             

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