Legislature(2015 - 2016)CAPITOL 106

03/22/2016 08:00 AM STATE AFFAIRS

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved HB 299 Out of Committee
Moved CSHB 275 (STA) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
             HB 299-PERS PARTICIPATION: CONTRACTORS                                                                         
8:19:22 AM                                                                                                                    
CHAIR LYNN  announced that the  first order of business  would be                                                               
HOUSE  BILL  NO. 299,  "An  Act  excluding certain  persons  from                                                               
participating  in  the  Public Employees'  Retirement  System  of                                                               
8:19:44 AM                                                                                                                    
REPRESENTATIVE TAMMY  WILSON, Alaska State Legislature,  as prime                                                               
sponsor  of   HB  299,  read  the   following  sponsor  statement                                                               
[original punctuation provided]:                                                                                                
     HB  299, is  being  brought forward  on  behalf of  the                                                                    
     501(C)3,    nonprofit   corporation    volunteer   fire                                                                    
     departments  within the  Fairbanks North  Star Borough,                                                                    
     operating  as   "independent  contractors".   They  are                                                                    
     currently under  contract with  the borough  to provide                                                                    
     emergency  response   services.  Each   nonprofit  fire                                                                    
     department  has  both  full  time  paid  employees  and                                                                    
     trained  volunteers as  emergency  responders. Each  of                                                                    
     these  organizations  provides  benefit plans  for  all                                                                    
     members.  Dolan vs  King County  was a  lawsuit between                                                                    
     the  County  and independent  non-profit  organizations                                                                    
     which provided  indigent legal services to  the county.                                                                    
     Over  a period  of thirty  years, King  County asserted                                                                    
     increasing budgetary and day  to day authority over the                                                                    
     formerly   independent  non-profit   organizations.  In                                                                    
     doing  so, it  asserted  more control  over the  groups                                                                    
     that   provided   the   services.  Employees   of   the                                                                    
     organizations sued  the County  for the  state employee                                                                    
     benefits.  They argued  that the  County's funding  and                                                                    
     control   over    their   "independent"   organizations                                                                    
     essentially made them state  employees for the purposes                                                                    
     of  participating in  the  Public Employees  Retirement                                                                    
     System (PERS)  and under pertinent statutes  and common                                                                    
     law   principles,  the   Supreme   Court  agreed   that                                                                    
     employees of  the organizations were  "employees" under                                                                    
     state law, and,  as such, were entitled  to be enrolled                                                                    
     in  the  PERS.  HB  299 would  clearly  define  who  is                                                                    
     eligible  for the  Public Employees'  Retirement System                                                                    
     of Alaska  and give added protection  to municipalities                                                                    
     against such liability. In times  of such fiscal strife                                                                    
     this  legislation would  encourage the  exploration and                                                                    
     utilization  of cost  effective  measures for  services                                                                    
     and  promote  independent organizations  and  business.                                                                    
     This  bill emphasizes  the need,  however, to  maintain                                                                    
     the  proprieties of  the independent  relationship when                                                                    
     contracting  for  the  provision  of  essential  public                                                                    
REPRESENTATIVE  WILSON noted  during her  reading of  the sponsor                                                               
statement   that  the   benefit  plans   provided  by   the  fire                                                               
departments of the  Fairbanks North Star Borough  (FNSB) to their                                                               
members include both health and retirement benefits.                                                                            
8:22:11 AM                                                                                                                    
REPRESENTATIVE WILSON  directed the committee  members' attention                                                               
to the  letter from Kathie Wasserman,  Executive Director, Alaska                                                               
Municipal League (AML), and Attachment  C of the Alaska Municipal                                                               
League's  Resolution  #2016-08,  both in  the  committee  packet.                                                               
She explained  that within FNSB  are fire service areas  with mil                                                               
rates to  cover the  services.   She offered  that the  mil rates                                                               
vary from  area to area, and  some areas have no  fire protection                                                               
service because they are unwilling to pay the extra cost.                                                                       
REPRESENTATIVE  WILSON  purported  that  HB 299  would  give  the                                                               
residents a  choice of the  level of fire protection  service for                                                               
which  they are  willing to  pay as  opposed to  the municipality                                                               
making  that determination  through the  budgetary process.   She                                                               
read Attachment  C, which read  as follows  [original punctuation                                                               
     1.c.  The  risk  of  significant  costs  if  government                                                                    
     contractors  were treated  as  employees qualified  for                                                                    
     inclusion in PERS or TRS.                                                                                                  
     3.a.      Municipalities,     particularly      smaller                                                                    
     municipalities   in   Alaska,    often   contract   for                                                                    
     government services; and                                                                                                   
     3.b.  A   municipality  contracting   for  governmental                                                                    
     services may,  in order to ensure  that public services                                                                    
     are provided  in a manner acceptable  to the community,                                                                    
     exercise more control over the  contractor than what is                                                                    
     normally seen in a purely contractual basis;                                                                               
REPRESENTATIVE  WILSON  added  that  the main  service  areas  in                                                               
Fairbanks are the fire service  areas and the road service areas.                                                               
She alleged  that FNSB has  made it clear  that it would  like to                                                               
take  over the  fire  service  areas and  combine  them into  one                                                               
service  area.    Ms.  Wilson  expressed  her  belief  that  fire                                                               
protection  services would  not be  better with  this change  but                                                               
would just  cost more.   She voiced  her support of  smaller fire                                                               
service areas with local control;  however, she conceded that the                                                               
buildings  and equipment  are  owned  by FNSB,  not  by the  fire                                                               
service  areas.   She stated  her preference  that FNSB  give the                                                               
buildings and equipment to the fire service areas.                                                                              
8:25:29 AM                                                                                                                    
REPRESENTATIVE  WILSON  continued  reading Attachment  C  of  the                                                               
Alaska Municipal  League's Resolution  #2016-08, under  number 3,                                                               
which read as follows [original punctuation provided]:                                                                          
     c. The Supreme  Court of the State  of Washington ruled                                                                    
     in 2012  that employees  of several  private non-profit                                                                    
     public  defender  agencies  that provided  services  to                                                                    
     King  County by  contract, were  employees of  the King                                                                    
     County for  purposes of the Washington  PERS, resulting                                                                    
     in a $31 million PERS liability for King County; and                                                                       
     d.  The   Washington  State   Legislature  subsequently                                                                    
     modified the  Washington State PERS statute  to clarify                                                                    
     that a  governmental contractor is not  an employer for                                                                    
     purposes  of the  Washington  State Retirement  System,                                                                    
     and that employees of  governmental contractors are not                                                                    
     eligible for state retirement system membership.                                                                           
     e. The  Washington legislation also clarifies  that the                                                                    
     determination    of   whether    an   employee/employer                                                                    
     relationship exists under the  Washington State PERS is                                                                    
     limited   solely  to   the  relationship   between  the                                                                    
     government  contractor  employee   and  the  retirement                                                                    
     system  employer, and  not the  relationship between  a                                                                    
     government contractor and retirement system employer.                                                                      
     f. The  unexpected and unplanned addition  of employees                                                                    
     entitled  to potentially  years of  retroactive service                                                                    
     credit  in a  governmental retirement  plan like  PERS,                                                                    
     may adversely impact not  only the particular employer,                                                                    
     but all the participants in the system.                                                                                    
     g. The intent in establishing  Alaska's PERS was not to                                                                    
     provide a retirement system  to employees of government                                                                    
REPRESENTATIVE  WILSON emphasized  that the  proposed legislation                                                               
would  not  eliminate   anyone  from  PERS,  as   the  FNSB  fire                                                               
department employees  and volunteers  receive benefits  under the                                                               
fire department's benefit plan.                                                                                                 
8:27:58 AM                                                                                                                    
The committee took a brief at-ease at 8:28 a.m.                                                                                 
8:28:12 AM                                                                                                                    
MITCH  FLYNN,  Fire  Chief,   Steese  Volunteer  Fire  Department                                                               
(SVFD), stated  that the Steese Volunteer  Fire Department (SVFD)                                                               
is  a 501(c)(3)  organization that  contracts independently  with                                                               
FNSB  to provide  fire services  and  emergency medical  services                                                               
(EMS) to  a pre-defined  service area.   He  said that  in recent                                                               
years  FNSB  has  notified  SVFD  concerning  problems  with  the                                                               
contract that  could pose a  financial liability to the  fire and                                                               
EMS service area's  tax-paying residents.  He said  FNSB has made                                                               
changes to the contract to  reduce the liability threat; however,                                                               
SVFD  is concerned  that there  still exists  a liability  threat                                                               
related to  the possibility  of current  or past  employees suing                                                               
for  PERS  benefits  because  of   the  way  the  contracts  were                                                               
MR.  FLYNN stated  his belief  that  HB 299  would eliminate  the                                                               
threat to PERS  and prevent employees currently not  in PERS from                                                               
receiving PERS benefits.   He asserted that it is  not the intent                                                               
of the bill  to interfere with the contracts  or remove employees                                                               
currently  eligible to  receive  benefits from  PERS.   He  cited                                                               
examples of  fire departments  providing contractual  services to                                                               
FNSB and rightfully being in the  PERS system, and he stated that                                                               
they  should remain  so.   He maintained  that SVFD  has its  own                                                               
retirement system  and was never  expected to participate  in the                                                               
state  PERS system.   He  reiterated his  support for  protecting                                                               
PERS for those legally entitled to it.                                                                                          
8:31:34 AM                                                                                                                    
REPRESENTATIVE  VAZQUEZ asked  Mr. Flynn  how many  volunteers he                                                               
MR.  FLYNN   responded  that   he  supervises   approximately  28                                                               
volunteers and 10 paid employees.                                                                                               
REPRESENTATIVE VAZQUEZ  asked if  the ten employees  are eligible                                                               
for PERS.                                                                                                                       
MR. FLYNN  answered that SVFD  has its own retirement  system and                                                               
is not in PERS.  He said  the benefits consisted of an IRA 401(k)                                                               
plan, full  medical benefits, accidental death  and dismemberment                                                               
benefits,   catastrophic   incidence   benefits,   and   Workers'                                                               
Compensation Insurance.                                                                                                         
REPRESENTATIVE VAZQUEZ  asked for  confirmation that  Mr. Flynn's                                                               
interest  in   the  proposed  legislation   is  to   ensure  that                                                               
independent contractors would not be included in PERS.                                                                          
MR. FLYNN  responded that his  testimony is that his  current and                                                               
past employees are not a legal  threat to PERS as they have their                                                               
own benefit plan.                                                                                                               
8:33:39 AM                                                                                                                    
REPRESENTATIVE  TALERICO asked  if  the SVFD  contract with  FNSB                                                               
addresses the use of FNSB facilities.                                                                                           
MR.  FLYNN  confirmed  that  FNSB  owns  the  equipment  and  the                                                               
building, and  the contract allows SVFD  the use of them.   Other                                                               
fire departments  own or rent  equipment and  buildings according                                                               
to how contracts were set up 30 years ago.                                                                                      
8:34:51 AM                                                                                                                    
REPRESENTATIVE  STUTES   asked  the  sponsor  if   there  is  any                                                               
opposition to HB 299.                                                                                                           
REPRESENTATIVE   WILSON  responded   that  the   University  Fire                                                               
Department (UFD) expressed  concern, but she added  that for UFD,                                                               
the fire  services contract is  between the university  and FNSB;                                                               
therefore, the employees would remain in PERS.                                                                                  
8:35:56 AM                                                                                                                    
KATHIE  WASSERMAN, Executive  Director,  Alaska Municipal  League                                                               
(AML),  stated that  PERS  has been  AML's  most important  issue                                                               
recently  and  cited  Senate  Bill  125 and  House  Bill  385  as                                                               
examples of legislation  increasing liability for municipalities.                                                               
She said that due to concern  about changes to PERS and taking on                                                               
more debt, AML supports HB 299.                                                                                                 
8:37:23 AM                                                                                                                    
REPRESENTATIVE VAZQUEZ asked  in what way PERS has  become one of                                                               
the major issues for AML.                                                                                                       
MS.   WASSERMAN  answered   that  municipalities   are  incurring                                                               
increasing amounts of debt due  to PERS liability and the smaller                                                               
communities cannot  afford it.   She also mentioned that  she has                                                               
heard  rumors  that  the  municipality  percentage  of  the  PERS                                                               
liability, currently at 22 percent, may be increased.                                                                           
REPRESENTATIVE  VAZQUEZ asked  why AML  specifically supports  HB                                                               
MS.  WASSERMAN  responded  that municipalities  cannot  afford  a                                                               
court decision  like the  Dolan v.  King County  decision against                                                             
King  County,  which   added  another  group  of   people  -  the                                                               
independent contractor - to the retirement benefit pool.                                                                        
8:39:46 AM                                                                                                                    
REPRESENTATIVE TALERICO  asked if  Ms. Wasserman agreed  that the                                                               
large  number  of  contract workers  all  over  Alaska  increases                                                               
concern for the municipalities that  these workers could suddenly                                                               
qualify for benefits.                                                                                                           
MS. WASSERMAN answered, "Exactly."                                                                                              
REPRESENTATIVE  TALERICO reiterated  that the  PERS liability  is                                                               
always a big concern for the smaller municipalities.                                                                            
8:42:03 AM                                                                                                                    
REPRESENTATIVE  KELLER  related  a   story  about  a  constituent                                                               
supplementing his income by teaching  part time, who was required                                                               
to have  health care insurance  through his employer  rather than                                                               
stay on his own plan, because of the Affordable Care Act.                                                                       
MS.  WASSERMAN  responded  that  she  was not  aware  of  such  a                                                               
8:44:07 AM                                                                                                                    
REPRESENTATIVE VAZQUEZ  asked for clarification  of HB 299  as it                                                               
related to Mr. Flynn's testimony.                                                                                               
REPRESENTATIVE WILSON offered her  understanding that Mr. Flynn's                                                               
testimony was that SVFD employees don't  need to be in PERS since                                                               
they have their own benefits.   She stated that the intent of the                                                               
proposed legislation was  to be proactive in light  of what could                                                               
happen as  evidenced under  Dolan v. King  County, [WA.  Sup. Ct.                                                             
Docket No.  82842-3 (Washington State  Supreme Court,  August 18,                                                               
REPRESENTATIVE  VAZQUEZ   asked  if  an   independent  contractor                                                               
working for SVFD  could decide to be part of  the SVFD retirement                                                               
REPRESENTATIVE WILSON replied that she thought not.                                                                             
8:46:56 AM                                                                                                                    
DAN  WAYNE,  Attorney,  Legislative  Legal  Counsel,  Legislative                                                               
Legal and  Research Services,  Legislative Affairs  Agency (LAA),                                                               
responded  to   the  question  from  Representative   Vazquez  by                                                               
distinguishing  between a  private retirement  plan, which  comes                                                               
under federal  jurisdiction, and a public  retirement plan, which                                                               
could be changed by the state.                                                                                                  
REPRESENTATIVE  VAZQUEZ   asked  Mr.  Wayne  if   an  independent                                                               
contractor working for SVFD could sue  to be included in the SVFD                                                               
retirement system.                                                                                                              
8:48:39 AM                                                                                                                    
MR. WAYNE  responded that  a contract employee  would be  free to                                                               
sue and, just  like Dolan, the court could  determine whether the                                                             
person  was an  employee  under common  law or  was,  in fact,  a                                                               
contractor.   The issues considered  would be the control  of the                                                               
employer over the contractor's activities  and the facts of their                                                               
REPRESENTATIVE  VAZQUEZ asked  whether a  local government,  with                                                               
its own retirement  system, would have the  same vulnerability as                                                               
PERS under Dolan.                                                                                                             
MR.  WAYNE responded  that  if  a local  government  had its  own                                                               
retirement system  instead of  PERS, the state  could not  pass a                                                               
law without running  the risk that the law could  be preempted by                                                               
federal law.                                                                                                                    
8:51:03 AM                                                                                                                    
REPRESENTATIVE  VAZQUEZ  asked   Ms.  Wasserman  what  retirement                                                               
systems exist within the municipalities other than PERS.                                                                        
MS. WASSERMAN  responded that  most municipal  retirement systems                                                               
are under  PERS, adding that  it is  costly to withdraw  from the                                                               
PERS system.  She offered that  a few municipalities did not sign                                                               
up with  PERS in the  beginning, and  she stated her  belief that                                                               
most of  those municipalities  offer no  retirement system.   She                                                               
mentioned   that  she   has   recommended   Nationwide  and   the                                                               
International     City/County    Management     Association    to                                                               
municipalities not covered under PERS.                                                                                          
8:52:15 AM                                                                                                                    
REPRESENTATIVE VAZQUEZ  asked Mr. Wayne  whether, even if  HB 299                                                               
was   passed,  a   municipality  that   factually  controls   all                                                               
activities of  an independent contractor  could still  be ordered                                                               
by a court  to award retirement benefits  because of overreaching                                                               
by  the  local  government.   She  suggested  that  the  proposed                                                               
legislation would not prevail in every situation.                                                                               
MR. WAYNE responded that HB  299 clarifies what is intended under                                                               
PERS but doesn't eliminate the  common law principle.  He offered                                                               
that an employer's degree of control  over a worker is a critical                                                               
factor in settling the question of whether they are an employee.                                                                
8:53:56 AM                                                                                                                    
REPRESENTATIVE  VAZQUEZ  agreed  that  HB 299  should  not  cover                                                               
outright employment situations.   She said that  HB 299 clarifies                                                               
the  issue,  but she  maintained  that  municipalities should  be                                                               
aware  that  if they  exert  too  much control  over  independent                                                               
contractors, then this  statute would not help  them [avoid being                                                               
sued for retirement benefits].                                                                                                  
REPRESENTATIVE  TALERICO   asked  how  road  service   areas  are                                                               
REPRESENTATIVE  WILSON responded  that  there are  over 100  road                                                               
service areas  in FNSB,  managed by  local volunteer  boards, and                                                               
road work is done by private contractors.                                                                                       
8:56:45 AM                                                                                                                    
REPRESENTATIVE   WILSON  asked   Mr.   Wayne   if  the   proposed                                                               
legislation would  affect legislative  staff under  contract with                                                               
the state.                                                                                                                      
MR. WAYNE responded  that he did not believe so.   He paraphrased                                                               
AS  24.10.060(f), which  read, "An  employee  of the  legislative                                                               
branch  of state  government  who is  employed  under a  personal                                                               
services contract  is not  entitled to  membership in  the public                                                               
employees' retirement system (SD  39.35) for employment under the                                                               
CHAIR LYNN closed public testimony on HB 299.                                                                                   
8:58:14 AM                                                                                                                    
REPRESENTATIVE STUTES  voiced her  support for  HB 299  and noted                                                               
the impact that PERS can have on small communities.                                                                             
REPRESENTATIVE SPOHNHOLZ  stated that  she also supported  HB 299                                                               
and  reiterated   Representative  Vazquez's  concern   about  the                                                               
overreach and  over-mandating of government in  regard to private                                                               
REPRESENTATIVE VAZQUEZ  said that  she strongly supports  HB 299.                                                               
She cautioned that if a  local government exerts too much control                                                               
over independent contractors, it then can become an employer.                                                                   
9:00:45 AM                                                                                                                    
REPRESENTATIVE KELLER  moved to  report HB  299 out  of committee                                                               
with  individual  recommendations  and  the  accompanying  fiscal                                                               
notes.   There being no objection,  HB 299 was reported  from the                                                               
House State Affairs Standing Committee.                                                                                         

Document Name Date/Time Subjects
01 HB 299A.pdf HSTA 3/22/2016 8:00:00 AM
HB 299
02 HB 299 Sponsor Statement.pdf HSTA 3/22/2016 8:00:00 AM
HB 299
03 HB 299 Letter of Support - Flynn.PDF HSTA 3/22/2016 8:00:00 AM
HB 299
04 HB 299 Letter of Support - Hansen.PDF HSTA 3/22/2016 8:00:00 AM
HB 299
05 HB 299 Letter of Support -Nebert.PDF HSTA 3/22/2016 8:00:00 AM
HB 299
06 HB 299 Letter of Support - Crouch.PDF HSTA 3/22/2016 8:00:00 AM
HB 299
07 HB 299 Fiscal Note - DOA CAS - 3-18-2016.pdf HSTA 3/22/2016 8:00:00 AM
HB 299
01 HB 275 Version A.pdf HSTA 3/22/2016 8:00:00 AM
HB 275
02 HB 275 Sponsor Statement.pdf HSTA 3/22/2016 8:00:00 AM
HB 275
03 HB 275 Supporting Documents - Letter SHI.pdf HSTA 3/22/2016 8:00:00 AM
HB 275
04 HB 275 Supporting Documents - Letter TCC.pdf HSTA 3/22/2016 8:00:00 AM
HB 275
05 HB 275 Supporting Documents -Governor Walker Proclamation.pdf HSTA 3/22/2016 8:00:00 AM
HB 275
06 HB 275 Supporting Documents --Letter Benson.pdf HSTA 3/22/2016 8:00:00 AM
HB 275
07 HB 275 Supporting Documents- Letter WIlliams.pdf HSTA 3/22/2016 8:00:00 AM
HB 275
08 HB 275 Fiscal Note LEG-SESS-02-06-16.pdf HSTA 3/22/2016 8:00:00 AM
HB 275
09 HB275 Fiscal Note - DOA-GS-Facilities.pdf HSTA 3/22/2016 8:00:00 AM
HB 275
10 HB 275 Supporting Documents -- Mayor Berkowitz.pdf HSTA 3/22/2016 8:00:00 AM
HB 275
11 HB 275 Letter of Support - Doyon HB 275 SB 159.pdf HSTA 3/22/2016 8:00:00 AM
HB 275
SB 159
12 HB 275 Support Letter - Edwardson.pdf HSTA 3/22/2016 8:00:00 AM
HB 275
13 HB 275 Indigenous Peoples Day resolution.PDF HSTA 3/22/2016 8:00:00 AM
HB 275
08 HB 299 Supporting Document - AK Municipal League Resolution.pdf HSTA 3/22/2016 8:00:00 AM
HB 299
09 HB 299 Supporting Document - Ketchikan Gateway Borough Resolution.pdf HSTA 3/22/2016 8:00:00 AM
HB 299
10 HB 299 Supporting Document - Case Summary.PDF HSTA 3/22/2016 8:00:00 AM
HB 299
11 HB 299 - Supporting Document - Dolan VS King County.pdf HSTA 3/22/2016 8:00:00 AM
HB 299