Legislature(2005 - 2006)BELTZ 211


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01:34:15 PM Start
01:34:26 PM HB278
02:44:26 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
        CSHB 278(RLS)-RETIREMENT SYSTEM LIABILITY/BONDS                                                                     
1:34:26 PM                                                                                                                  
SENATOR   BERT  STEDMAN   announced   HB  278   to   be  up   for                                                               
consideration. He asked the record  to reflect that there was not                                                               
a quorum, but  that Representative Hawker would  introduce HB 278                                                               
and public testimony would be taken.                                                                                            
REPRESENTATIVE MIKE  HAWKER, Sponsor of HB  278, informed members                                                               
that  the  bill  addresses  the issue  of  the  unfunded  pension                                                               
obligation  for  past service  costs.  Describing  HB 278  as  an                                                               
empowering  bill, he  said it  doesn't authorize  transactions it                                                               
simply  grants power  to the  Municipal  Bond Bank  to work  with                                                               
municipalities to  see if they  can structure  such transactions.                                                               
He added  that the bill  also clarifies that  municipalities have                                                               
the right to conduct such transactions.                                                                                         
A pension  obligation bonding transaction is  simply an arbitrage                                                               
transaction.  In such  a  transaction an  entity  with a  pension                                                               
liability  would  issue  debt  the proceeds  of  which  would  be                                                               
invested with  the plan assets and  would yield a return  that is                                                               
the same  as the  rest of  the plan  assets. In  the case  of the                                                               
State  of  Alaska  and  its   government  employers  that's  been                                                               
demonstrated to  be a bit  better than 8  percent. Representative                                                               
Hawker  described  it  as  borrowing  for  cheap,  investing  for                                                               
expensive,  and benefiting  from the  differential and  suggested                                                               
that even  in today's markets the  spread would be better  than 5                                                               
REPRESENTATIVE  HAWKER  outlined  the  risks and  the  points  of                                                               
opposition:  too much  inherent  investment risk;  constitutional                                                               
limitations regarding  the ability for municipalities  to general                                                               
obligation  debt for  the purpose  of  capital projects;  issuing                                                               
such  debt   transactions  could   impair  the  State's   or  the                                                               
municipalities'  credit ratings;  municipalities might  refuse to                                                               
pay after entering into one of these transactions.                                                                              
He  asserted  his  belief  that, "...  there  are  very  rational                                                               
analyses that would  lead one to the conclusion  that while those                                                               
risks  all  do exist,  that  they  are adequately  mitigated  and                                                               
protected by the forces within the  market - that we would not be                                                               
subjecting  anyone  or  ourselves   assuming  too  much  risk  in                                                               
pursuing one of these transactions.                                                                                             
REPRESENTATIVE HAWKER  noted that  the packets  included comments                                                               
from Standard and Poor's rating  agency and an educational primer                                                               
from  a securities  law firm  both of  which provided  supporting                                                               
comments  and  information related  to  POBs.  In particular  the                                                               
primer   points  out   that  agencies   actually  endorse   these                                                               
With regard to  the concern about constitutional  limits, he said                                                               
the key  is how the transaction  is structured, which is  why the                                                               
vehicles that are used aren't,  by definition, general obligation                                                               
bonds. Although,  he opined, if  that authority were  available a                                                               
transaction  could be  executed  at  an even  lower  cost to  the                                                               
The  issue of  investment risk  and market  timing is  legitimate                                                               
when the window  is short, but over time that  risk is mitigated.                                                               
The transactions  contemplated here  extend from  25 to  28 years                                                               
and  it's been  proven time  and  again that  over time,  markets                                                               
perform  consistently. For  example, in  the past  ten years  the                                                               
State's PERS and TRS programs have returned more than 8 percent.                                                                
To address the concern that  relates to municipalities not paying                                                               
up  he pointed  out  that  the Municipal  Bond  Bank screens  and                                                               
guides municipalities that are  entering into these transactions.                                                               
Language in  the bill makes  it clear  that a community  won't be                                                               
put into debt circumstances beyond its means.                                                                                   
He advised that the bill  has been specifically crafted to exempt                                                               
POBs from any of the debt  ceiling limits placed on the Municipal                                                               
Bond Bank.  He asked the  committee to give  particular attention                                                               
to that provision and decide whether or not it is appropriate.                                                                  
1:45:45 PM                                                                                                                    
CHAIR  STEDMAN  asked for  a  layman's  explanation of:  how  the                                                               
mechanism would  work; why municipalities would  borrow; and what                                                               
municipalities would do with the money.                                                                                         
REPRESENTATIVE  HAWKER explained  that  the  Municipal Bond  Bank                                                               
exists to  help government  employers in the  state that  may not                                                               
have  the  financial  standing  to  enter  international  capital                                                               
markets.  In   this  instance,  the  bill   would  authorize  the                                                               
Municipal Bond Band  to issue debt on behalf  of communities. The                                                               
municipalities would be the ultimate  obligators for repaying the                                                               
debt  and the  money that's  raised  would go  to the  individual                                                               
municipalities for  the specific purpose of  being deposited into                                                               
the  state's retirement  investment  trust. That  money would  be                                                               
invested  on  behalf of  the  particular  community or  group  of                                                               
communities.  The bill  says that  if  a community  wants to  put                                                               
money  into its  PERS  or TRS  account(s) then  as  the money  is                                                               
invested it  is earmarked  and accounted  for separately  so that                                                               
the benefit  of the  investment would  go to  the benefit  of the                                                               
specific community that made the initial deposit.                                                                               
CHAIR  STEDMAN posed  the hypothetical  situation of  a community                                                               
with a  $25 million liability  that wanted to use  this mechanism                                                               
for  all  of  its  unfunded liability  and  asked  Representative                                                               
Hawker to explain that process.                                                                                                 
REPRESENTATIVE  HAWKER  explained  that the  bond  authority,  on                                                               
behalf of the community, would issue  $25 million in debt. In the                                                               
open market  that debt  would be payable  at somewhere  between 5                                                               
and 6  percent. When the money  goes into the pension  plan(s) it                                                               
would  reduce the  employer's unfunded  past service  cost. As  a                                                               
result, when  the actuarial  valuation is  performed on  the plan                                                               
the  employer's  obligation  for   past  service  cost  would  be                                                               
reduced.  The community  would no  longer have  an unfunded  past                                                               
service  cost. Instead  of having  an obligation  to the  pension                                                               
plan,  it would  be  substituting  a fixed  debt  to the  capital                                                               
markets at a little more than 5 percent.                                                                                        
He  advised when  he first  began  looking at  these vehicles  he                                                               
asked  national investment  firms to  review the  state's overall                                                               
financial picture and its $6  billion unfunded pension liability.                                                               
Two firms  modeled what would happen  if the state were  to go to                                                               
the capital markets and bond  out the entire $6 billion liability                                                               
and  then pay  off the  debt with  a 25  year amortization.  Both                                                               
indicated that the  approximate net present value  or real dollar                                                               
savings  to the  pension  plan  would be  in  the  range of  $1.5                                                               
REPRESENTATIVE HAWKER  acknowledged that the scenario  was just a                                                               
model, but  it clarifies that  there is the potential  for saving                                                               
the  public  significant  amounts  of  money  in  satisfying  the                                                               
pension obligations.                                                                                                            
CHAIR STEDMAN  asked for assurance that  municipalities have this                                                               
option and it is in no way mandatory.                                                                                           
REPRESENTATIVE   HAWKER  agreed   that  the   bill  is   strictly                                                               
permissive and the decision to  pursue such transactions would be                                                               
made on a community-by-community basis.                                                                                         
CHAIR STEDMAN questioned whether there have been failures.                                                                      
REPRESENTATIVE  HAWKER  responded  there  have  been  spectacular                                                               
failures, but if the transactions  are approached responsibly and                                                               
the expectations for  returns are realistic this  is a reasonable                                                               
alternative.  The  permanent  fund  is a  good  solid  investment                                                               
benchmark  that  shows  that  a long-term  average  return  of  8                                                               
percent isn't unreasonable.  On the other hand,  some states have                                                               
entered  into transactions  in order  to  leverage their  pension                                                               
plans to remove money from the  plans and place it in the general                                                               
fund to meet  ongoing governmental obligations. He  said he would                                                               
argue  that that  is  clearly wrong  and  that action  positioned                                                               
those states for spectacular failure.                                                                                           
He asserted that  it's important to look at successes  as well as                                                               
failures  to make  certain  that,  as the  bill  is crafted,  the                                                               
appropriate   sidebars  are   in   place  to   ensure  that   the                                                               
transactions are approached responsibly.                                                                                        
CHAIR  STEDMAN  referenced  the hypothetical  instance  of  an  8                                                               
percent return for bonds that are  issued and pay between 5 and 6                                                               
percent and asked for clarification as  to how the money would be                                                               
REPRESENTATIVE HAWKER  replied the proceeds of  the bond issuance                                                               
would be deposited  into the pension retirement  trusts and would                                                               
be invested  along with the  rest of  the pension assets.  As has                                                               
been demonstrated here  in Alaska, the return over  time would be                                                               
in excess of 8 percent.                                                                                                         
1:55:35 PM                                                                                                                    
CHAIR STEDMAN questioned where the risk lay.                                                                                    
REPRESENTATIVE  HAWKER replied  the investment  risk is  that the                                                               
state pensions, under  the auspices of the ARM  Board, could fail                                                               
to earn a return that is greater  than the cost of the bonds over                                                               
the life of the bond issue.                                                                                                     
CHAIR STEDMAN asked if success  or failure is dependent on swings                                                               
in the financial market.                                                                                                        
REPRESENTATIVE HAWKER  responded market timing is  important, but                                                               
the value of  these transactions is that there  is a demonstrated                                                               
ability  to achieve  an 8  percent  return over  time. Also,  the                                                               
bonds are contractual  obligations so the rate is  fixed over the                                                               
term of the obligation.                                                                                                         
CHAIR  STEDMAN  noted   that  he  and  most   others  agree  that                                                               
municipalities  are responsible  for their  own liabilities  even                                                               
though  the state  might have  to step  in at  some point  if the                                                               
liabilities   become  unmanageable   at  the   local  level.   He                                                               
questioned how  municipalities might deal with  transactions that                                                               
"turn  upside  down"   and  how  the  state   treasury  might  be                                                               
REPRESENTATIVE HAWKER said he  couldn't speak for municipalities,                                                               
but many  are already turned upside  down in terms of  ability to                                                               
meet their  current obligations. He  said he does agree  that the                                                               
PERS liability  is an  obligation of  the municipalities.  HB 278                                                               
provides  a tool  for municipalities  to help  themselves without                                                               
increasing risk to  the state treasury. Certainly  there would be                                                               
no more  risk than there  is now  since the retirement  plans are                                                               
state sponsored and have constitutionally mandated benefits.                                                                    
CHAIR STEDMAN asked if there  has been discussion about including                                                               
schools,   the  university,   and  the   state  in   addition  to                                                               
REPRESENTATIVE  HAWKER acknowledged,  for  the  record, that  the                                                               
current administration  does not believe that  these transactions                                                               
are in  the state's best interest  so it won't be  a participant.                                                               
On  the other  hand, individual  municipalities have  asked about                                                               
participation and  that is an  individual decision as  to whether                                                               
or not to pursue this in  relation to the PERS/TRS liability. The                                                               
University  of   Alaska  requested   specific  authority   to  be                                                               
included,  but   at  Representative  Weyhrauch's   request,  that                                                               
authority  was  removed  from  the  bill  in  the  House  Finance                                                               
He reiterated  that this is just  one tool that has  proven to be                                                               
adequately  successful in  markets outside  Alaska and  that it's                                                               
important  to put  as many  tools as  is responsibly  possible in                                                               
municipal employers' hands.                                                                                                     
2:05:27 PM                                                                                                                    
CHAIR  STEDMAN asked  if the  proceeds from  a bond  issuance are                                                               
turned over to the ARM Board for management.                                                                                    
REPRESENTATIVE  HAWKER   replied  yes;  the  proceeds   would  be                                                               
invested under the  auspices of the investment  managers that are                                                               
currently managing the state pension investment trusts.                                                                         
CHAIR  STEDMAN asked  if  the ARM  Board  would assume  increased                                                               
REPRESENTATIVE HAWKER said  he couldn't speak for  the ARM Board,                                                               
but  its   current  investment  management  structure   would  be                                                               
affected. Simply put,  HB 278 would provide  additional assets to                                                               
invest according to current investment guidelines and policies.                                                                 
CHAIR  STEDMAN  questioned  whether  the ARM  Board  wouldn't  be                                                               
doubling its  liability if it were  paying the bonds off  over 20                                                               
to 25 years.                                                                                                                    
REPRESENTATIVE  HAWKER admitted  he  was a  bit  confused by  the                                                               
question because the debt to  the bond investors would ultimately                                                               
be  an  obligation   of  the  government  employer   and  not  an                                                               
obligation of the pension trust.                                                                                                
CHAIR STEDMAN agreed and added  that everything flows back to the                                                               
REPRESENTATIVE HAWKER said he couldn't  see how the obligation to                                                               
the  capital  markets  from  a   municipality  would  affect  the                                                               
operation of the trustee that was investing the proceeds.                                                                       
CHAIR STEDMAN responded the trustee  investing the proceeds would                                                               
have  to  deal with  asset  allocation  and the  underlying  debt                                                               
service requirements to pay the bonds off.                                                                                      
REPRESENTATIVE HAWKER respectfully pointed  out that the money to                                                               
pay off the bonds wouldn't come  from the pension trust. The only                                                               
cash flow  the pension trustees have  to manage is the  cash flow                                                               
required to meet  the benefits and obligations  under the pension                                                               
plans.  A municipality's  obligation wouldn't  be transferred  to                                                               
anyone; it would  remain an obligation of  that municipality. The                                                               
only obligation  the pension  trust would have  would be  to meet                                                               
the benefit payments that are  part of the pension and retirement                                                               
2:09:05 PM                                                                                                                    
CAROL SAMUELS,  Vice President with  Seattle-Northwest Securities                                                               
Corporation, testified in support of  HB 278 and reported that in                                                               
Oregon over  130 municipalities have entered  the capital markets                                                               
for the purpose of refinancing pension liability.                                                                               
Responding to Chair  Stedman she clarified that this  isn't a new                                                               
financing; it is a replacement.  From a cash flow standpoint, the                                                               
bond proceeds would  be sent to the system and  the obligation to                                                               
the  system  would  be  satisfied by  those  bond  proceeds.  The                                                               
municipality would  use general fund  resources - which  it would                                                               
otherwise use to pay off the obligation  to PERS - to pay off the                                                               
bonds. If everything  is successful from a  reinvestment point of                                                               
view, the overall cost to the municipality should go down.                                                                      
In Oregon  the various jurisdictions  issued about $5  billion in                                                               
POBs over the last four years  and the projection is that it will                                                               
save more than $1 billion or  about 25 percent of the amount that                                                               
was borrowed.  The projection  assumed a  reinvestment rate  of 8                                                               
She directed  attention to  page 8  of a  PowerPoint presentation                                                               
and  said  it indicates  the  actual  experience of  the  various                                                               
jurisdictions since 2002.  Column 2 shows the  true interest cost                                                               
(TIC) and  it indicates  that the  jurisdictions borrowed  from a                                                               
low of 4.77 percent in late 2005  to a high of 7 percent in 2002.                                                               
The average is  between 5 and 5.5 percent. The  column at the far                                                               
right  shows  the rate  of  return  for  each entity  since  they                                                               
deposited  the   proceeds.  She  noted  that   even  the  highest                                                               
borrowing rate has  earned more than the cost of  funds, which is                                                               
the break  even. To the  extent that the municipalities  earn, on                                                               
average, more  than 7 percent  over the 25-year  borrowing period                                                               
they  will reduce  the amount  that they  would otherwise  pay to                                                               
She  summarized  that when  properly  structured  POBs can  be  a                                                               
useful  tool to  municipalities that  are faced  with significant                                                               
cost increases in order to payoff a liability.                                                                                  
2:13:53 PM                                                                                                                    
SENATOR THOMAS WAGONER asked what  would keep a municipality from                                                               
getting into the same difficulty again.                                                                                         
MS. SAMUELS replied  Oregon had similar difficulties  and in 2003                                                               
that  Legislature approved  a rewrite  of the  system. Originally                                                               
the  liability was  projected to  be $17  billion and  now it  is                                                               
projected to be between $5  billion and $6 billion. Certainly the                                                               
strong returns  in the last  few years  have helped, but  most of                                                               
the  reduction came  through reforms.  The system  was a  defined                                                               
benefit system  and is now  a combination of defined  benefit and                                                               
defined contribution.                                                                                                           
SENATOR  WAGONER said  Alaska has  taken similar  steps with  its                                                               
pension  plans,  but the  real  problem  is skyrocketing  medical                                                               
costs here in  Alaska compared to other states.  The problem here                                                               
in Alaska  isn't a  lack of  money it's a  problem of  ignoring a                                                               
solution, he asserted.                                                                                                          
2:16:55 PM                                                                                                                    
REPRESENTATIVE HAWKER  agreed that the greatest  challenge to the                                                               
pension plan,  to Medicaid  and to  workers' compensation  is the                                                               
explosive unsustainable  growth in  medical costs. He  asked that                                                               
this be  viewed on its  own merit as just  one of the  many tools                                                               
needed to approach the problem.                                                                                                 
LARRY SEMMENS,  Finance Director  for the  City of  Kenai, stated                                                               
support for the work the  Legislature has done to address pension                                                               
issues.  He said  he  would like  to  go on  record  as being  in                                                               
personal  support of  HB 278  because it  gives municipalities  a                                                               
tool to deal with an  unfunded liability. He emphasized that each                                                               
municipality  would analyze  risk before  making the  decision to                                                               
enter into these  transactions and if the borrowing  market is at                                                               
7.5 percent it's  unlikely that any POBs would  be issued because                                                               
the benefit wouldn't justify the risk.                                                                                          
He  said it's  unlikely that  the moral  obligation of  the state                                                               
would be affected if a municipality  were to default on the debt.                                                               
It's  more  likely,  he  said,  that  a  struggling  municipality                                                               
wouldn't be able  to meet the terms of the  issuance in the first                                                               
place.  Looking at  it from  the reverse  he said  he wonders  if                                                               
there might  be an  impact on the  state if  municipalities began                                                               
having financial  problems due to  the dramatic increase  in PERS                                                               
rates. That is  likely because if a municipality  were to default                                                               
on  its PERS  obligation the  rest of  the system  would have  to                                                               
assume  that  obligation and  the  State  constitutes about  two-                                                               
thirds of the PERS system.                                                                                                      
He urged the committee to  give municipalities tools to deal with                                                               
their unfunded  pension obligations.  This is  just one  of those                                                               
tools, he said.                                                                                                                 
2:21:12 PM                                                                                                                    
CHAIR STEDMAN asked him to comment as a member of the ARM Board.                                                                
MR. SEMMENS reported that the ARM  Board has stated that it would                                                               
continue to evaluate POBs, but it has not made a recommendation.                                                                
CHAIR  STEDMAN  asked  if  the  ARM Board  would  return  to  the                                                               
Legislature in January 2007 with a list of recommendations.                                                                     
MR. SEMMENS replied  the ARM Board issued its report  on April 18                                                               
with recommendations  that were  identified by  three priorities.                                                               
One recommendation  is embodied  in HB  278 and as  far as  he is                                                               
aware, that's the only action  the Legislature has taken on those                                                               
recommendations. SB  141 tasked the  ARM Board with  managing the                                                               
assets such that they would  meet liabilities. He interprets that                                                               
to mean that there must be enough assets in the system.                                                                         
2:24:08 PM                                                                                                                    
GREGG SUNDBERG,  Managing Director  with Merrill Lynch,  spoke in                                                               
support of the  bill. He reinforced the notion that  this is just                                                               
one important  tool and in  no way is it  a fix for  the systemic                                                               
problem that  caused the unfunded liability.  Depending on market                                                               
conditions this tool can be  used beneficially to help reduce the                                                               
cost of  the unfunded liability  that remains after  the systemic                                                               
problem is addressed.                                                                                                           
He cautioned  that using  POBs would not  be appropriate  for all                                                               
entities because the use of  bonds exchanges a soft liability for                                                               
a  hard liability  and  some  entities aren't  in  a position  to                                                               
manage exposure to a hard  liability. Clearly some municipalities                                                               
in Alaska will benefit more than  others and it's likely that the                                                               
larger municipalities will benefit more frequently.                                                                             
In  response to  questions about  prior use  of POBs,  he advised                                                               
that  about 160  pension financings  have been  done in  the last                                                               
three  years  and virtually  all  could  be viewed  as  successes                                                               
retrospectively.  One  measure  of  success  is  how  the  rating                                                               
agencies   view  the   risk  exposure   of  these   transactions.                                                               
Generally,  he  said, the  existing  ratings  are maintained  and                                                               
sometimes the rating  agency comment is positive  relating to use                                                               
of  POBs.   As  long   as  the   pension  bonds   are  structured                                                               
conservatively  so the  employer savings  is about  constant over                                                               
time; and as long as  conservative actuarial assumptions are used                                                               
in the  savings calculations; and ask  long as POBs are  just one                                                               
tool  of  a larger  comprehensive  pension  plan there  is  every                                                               
reason to believe that there would be no impact on ratings.                                                                     
Identifying the  problem, making a systemic  fix and implementing                                                               
a POB  program to lower  the cost  of the remaining  liability is                                                               
often viewed as credit positive, he concluded.                                                                                  
2:27:39 PM                                                                                                                    
SENATOR WAGONER announced that he had  a statement to make and he                                                               
meant no  disrespect to Representative  Hawker or others  who had                                                               
testified. He continued to say that:                                                                                            
     As long  as ANWAR maintains  the current status  and as                                                                    
     long as people in Washington  and Oregon continue to be                                                                    
     against  opening   up  of  ANWAR,   I'm  going   to  do                                                                    
     everything  in my  power, legislatively  and personally                                                                    
     to dissuade  anybody in Alaska from  doing any business                                                                    
     at  all  with  people   from  Washington,  Oregon,  and                                                                    
CHAIR  STEDMAN  remarked  Senator  Wagoner isn't  alone  in  that                                                               
REPRESENTATIVE  HAWKER  said  he  was not  unfamiliar  with  such                                                               
comments and  he had probably  expressed similar opinions  in the                                                               
past. However, a  U.S. Senator once counseled him  to be cautious                                                               
in taking that approach.                                                                                                        
2:30:16 PM                                                                                                                    
CHAIR STEDMAN  announced he  would like to  hear from  the Alaska                                                               
Municipal League.                                                                                                               
KEVIN RITCHIE, Executive Director  of the Alaska Municipal League                                                               
(AML), spoke in  support of HB 278 and advised  that AML passed a                                                               
resolution supporting the option  to use pension obligation bonds                                                               
as a tool.                                                                                                                      
He  agreed  that  the larger  more  sophisticated  municipalities                                                               
would  be  more  likely  to   use  this  tool  than  the  smaller                                                               
municipalities, but a reason for having  the bond bank is to help                                                               
smaller less financially  sophisticated municipalities. That's an                                                               
advantage of the  bond bank; it puts packages  together for small                                                               
communities that go to the bond market.                                                                                         
MR. RITCHIE likened the proposal  to refinancing a home mortgage.                                                               
The  original loan  is paid  off, a  new loan  is taken  out, and                                                               
payments are  made to that  new debt instrument. The  state would                                                               
be paid  off and  with the resulting  reduction in  liability the                                                               
PERS rate would  go down. There would be  another obligation, but                                                               
the idea is  that it would be smaller than  the obligation to the                                                               
Before anyone uses  this tool it is important to  have the entire                                                               
plan  outlined by  the state  regarding  how it  can address  the                                                               
issue. The  bottom line is that  on the local level  all citizens                                                               
are double  constituents. They are city  and borough constituents                                                               
as well as  state constituents and the goal is  for the state and                                                               
municipalities  to  work  together  to  get  the  best  deal  for                                                               
constituents. For some  communities, he said, this  might be part                                                               
of  the solution.  Some  large communities  might  not make  this                                                               
choice and  some of  the smaller communities  might have  to band                                                               
together with other  small municipalities to evaluate  the use of                                                               
this tool.                                                                                                                      
CHAIR  STEDMAN  asked   if  AML  and  the  ARM   Board  have  had                                                               
conversations on the unfunded liability issue.                                                                                  
MR. RITCHIE replied  they have been working  together closely and                                                               
although the ARM  Board hasn't taken a stand on  whether POBs are                                                               
a good idea  or not, AML looks forward to  continuing the working                                                               
2:36:20 PM                                                                                                                    
CARL  ROSE,  Executive  Director  of the  Association  of  Alaska                                                               
School Boards (AASB),  stated that AASB is on record  as being in                                                               
support of the option to  use pension obligation bonds. He opined                                                               
that the  decision to take  advantage of this opportunity  or not                                                               
is a  policy call that  should be made  at the local  level. This                                                               
would be  a partnership  at the  local level  with municipalities                                                               
and with  the state as  well. We'd  like the opportunity  to take                                                               
advantage of  this if it  serves us well  at the local  level, he                                                               
CHAIR  STEDMAN  asked if  AASB  believes  this  would be  a  good                                                               
mechanism for dealing with the PERS/TRS liability issue.                                                                        
MR. ROSE replied  it could be in some  school districts. Clearly,                                                               
a school district couldn't act  alone; it would be in conjunction                                                               
with the local  municipalities, but it's at the  local level that                                                               
the feasibility discussion should take place.                                                                                   
CHAIR STEDMAN  remarked that  would be  a discussion  for another                                                               
day. because the state shares in the cost of education.                                                                         
MR. ROSE agreed.                                                                                                                
2:39:24 PM                                                                                                                    
CHAIR STEDMAN suggested  that the issue of greater  return on the                                                               
portfolio  would  be explored  when  the  bill  moved on  to  the                                                               
Finance Committee.  Everyone should be comfortable  with the risk                                                               
inherent and  there should be  an action  plan in the  event that                                                               
this turns upside down for some municipality.                                                                                   
He  told Representative  Hawker that  he appreciated  his comment                                                               
that  the  municipal  level PERS/TRS  liability  is  a  municipal                                                               
REPRESENTATIVE HAWKER said if a municipality should avail itself                                                                
of this opportunity it would be signing on the line                                                                             
acknowledging that liability.                                                                                                   
CHAIR STEDMAN  closed public testimony  and noted that  he didn't                                                               
have a  quorum and  so he  could not  take action  on HB  278. He                                                               
announced that the committee would do  so at the next meeting and                                                               
further discussion could take place in the Finance Committee.                                                                   

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