Legislature(2007 - 2008)SENATE FINANCE 532
02/22/2007 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB61 | |
| SB82 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 61 | TELECONFERENCED | |
| *+ | SB 82 | TELECONFERENCED | |
| *+ | SB 83 | TELECONFERENCED | |
9:06:21 AM SENATE BILL NO. 61 "An Act making appropriations for qualified regional seafood development associations, for investigation and litigation relating to the public employees' retirement system and the teachers' retirement system, and for a special advisory election; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. 9:07:31 AM KAREN REHFELD, Director, Office of Management and Budget, Office of the Governor, introduced the legislation. She noted the total appropriation request was $13,156,300, of which $1,156,300 was general funds and $12 million was other funds. Ms. Rehfeld informed that the original submission of the bill had been amended. One amendment changed an effective date to allow the Department of Law, Civil Division, Labor and State Affairs section to pay outstanding investigation invoices for services rendered in October 2006. 9:07:55 AM Department of Commerce, Community and Economic Development Section: 1 Department: Commerce Results Delivery Unit (RDU) or Component: Office of Economic Development Supplemental Need: Regional Seafood Development Tax pass- through to the Copper River/Prince William Sound Marketing Association. This appropriation was inadvertently omitted from the FY 07 budget bills. The 1% tax assessment generated $152,464 during calendar year 2005, which was to be appropriated to the association as of July 1, 2006. Legislative Finance Division (LFD) Notes: The Department informed Leg. Finance about this problem in August, 2006. The Department is using Fisheries Revitalization funding to fill the gap until this tax can be appropriated. $0 Ms. Rehfeld overviewed this item. 9:08:40 AM Department of Law Section: 2(a) - (b) Department: Law RDU or Component: Civil Division, Labor and State Affairs Supplemental Need: Funding for the investigation and proposed litigation related to actuarial services received by the State of Alaska. The investigation would be completed during FY 07. The amount of the appropriations is the estimated cost to complete the investigation and take the case from inception through trial. Amendment Date: 2/16/07 Amendment No.: ES Law A Amendment Explanation: Revise the funding split in sec. 2 to be in accordance with the Division of Retirement and Benefit's cost allocation plan and thus reflect: 72% PERS, and increase of $369,000 to $8,640,000, and 28% TRS, a decrease of $369,000 to $3,360,000 LFD Notes: It is unclear how long the litigation is expected to continue, but this funding is available for the life of the project. The Department of Law believes there is sufficient evidence of gross negligence to warrant pursuing the case. There is no guarantee that the state will receive any compensation if the state prevails. Funding is requested to cover current attorney fees. $8,271,000 PERS $3,729,000 TRS $12,000,000 Total Funds Ms. Rehfeld reviewed this request. 9:09:23 AM Co-Chair Hoffman asked if $100,000 was appropriated for this effort in FY 07. 9:09:31 AM Ms. Rehfeld responded that approximately $400,000 was appropriated to "begin an investigation" and this supplemental request was for funding to complete the investigation. The total cost of the investigation was estimated to be $850,000. The remainder of the supplemental appropriation would be expended to "proceed with litigation." 9:09:51 AM Co-Chair Hoffman asked if the funding were appropriated in this legislation, when the Department of Law would proceed with the lawsuit. 9:10:05 AM MIKE BARNHILL, Assistant Attorney General, Labor and State Affairs Section, Civil Division, Department of Law, testified that once the funds were received, the Department would file the lawsuit. 9:10:37 AM Co-Chair Hoffman asked what options other than the calculation of an hourly fee, had been considered in estimating the cost of this undertaking. 9:10:49 AM Mr. Barnhill had considered utilizing a contingency fee as well as the cost to the State as measurements of the estimated cost and had determined that an hourly fee method would generate the best return for the State. 9:11:10 AM Co-Chair Hoffman asked whether the Alaska Retirement Board (ARM) supported this litigation effort. 9:11:20 AM Mr. Barnhill affirmed the Board was in support, noting a resolution indicating such [copy on file]. 9:11:29 AM Senator Thomas asked if an anticipated recovery amount had been estimated. 9:11:55 AM Mr. Barnhill replied that such an amount had been projected. However, because the compliant had yet to be filed, the amount should only be disclosed to the Committee in the confines of an executive session. 9:12:22 AM Senator Thomas asked if the basis of the case would be errors or omissions on the part of the actuarial contractor. 9:12:37 AM Mr. Barnhill affirmed that the Department has researched the situation extensively. He again declined to divulge further detail, as it would be a more appropriate discussion held in an executive session. 9:12:59 AM Co-Chair Hoffman announced his intent to convene an executive session in the future to receive a detailed overview on the situation. The issue was significant and had the potential to generate "several million dollars" for the State. 9:13:21 AM Co-Chair Stedman surmised the $12 million requested would fund the process through obtainment of a trial date and that an additional appropriation would be requested to fund the actual trial expenses. 9:13:48 AM Mr. Barnhill corrected that $12 million was the anticipated total cost, including a trial and any appeal. He could not guarantee the amount would be accurate, but assured it was the Department's best estimate. 9:14:14 AM Senator Elton noted that the $850,000 cost of the investigation portion of this effort had not been detailed. He asked whether the investigation was complete. 9:14:38 AM Mr. Barnhill responded that "for all intents and purposes" the investigation was complete and that $850,000 was the accurate cost. 9:15:02 AM Senator Olson spoke to the process involved in lawsuits, noting that the case would not reach trial for one to two years. He therefore questioned the need to provide these funds as a FY 07 supplemental appropriation. 9:15:36 AM Mr. Barnhill explained that the funding was requested before FY 08 to allow the Department to "get started now". The investigation was complete and the Department entered into a "tolling agreement" with Mercer Consulting last summer, which was anticipated to expire March 8, 2007. 9:16:04 AM Co-Chair Hoffman contended that the State was ultimately responsible for funding the $8 to $10 billion unfunded liability. In retrospect the original employer contribution rates were too low and should have been higher. He asked why the Department of Law "feels" that the State had a "strong case" sufficient to justify a $12 million expenditure. 9:17:12 AM Mr. Barnhill reiterated the due to the nature of the claims he would defer his response until the executive session was convened. Mr. Barnhill did share that in the investigation process, the Department contracted with other actuaries and a law firm with experience in this area. After review of the situation between the State and Mercer Consulting, these consultants concluded that the State has "good claims" for actuarial malpractice. This is consistent with the State's and the ARM Board's fiduciary duty to pursue these claims. 9:18:03 AM Co-Chair Hoffman asked the "track record" of other companies' suits against actuaries. 9:18:20 AM Mr. Barnhill answered that approximately six cases have occurred involving a pension fund claim of actuarial malpractice against an actuarial. The outcome of these cases was "mixed". Mercer Consulting had been sued by a company and the judge issued an award of $3 million against a claim of $23 million. Los Angeles County filed a claim for $2 million against an actuary, which was settled for a confidential amount. A claim by the State of Texas was dismissed on summary judgment and is now being appealed. However, instances of success exist. The firm contracted by the Department has had "great success" and therefore "we think we'll have great success". 9:20:26 AM Office of the Governor Section: 3 Department: Governor RDU or Component: Elections Supplemental Need: Funding for the costs associated with the April 3, 2007, special advisory election required by ch. 1, FSSLA 2006, on the subject of employment benefits for same-sex partners of public employees and retirees. LFD Notes: Although a fiscal note identified costs associated with this election, the note never became an appropriation; this request does not provide duplicate funding. $1,156,300 General Funds Ms. Rehfeld explained this item pertains to costs associated with the scheduled statewide election. The Division of Elections had begun efforts and had obligated funds. 9:21:17 AM Senator Elton asked the amount spent to date. 9:21:27 AM JIM MERRINER, Chief of Staff, Office of the Lieutenant Governor, testified that $228,000 had been obligated to date. 9:21:47 AM Senator Dyson understood that some absentee ballots had been mailed to voters. He asked the cost to stop the election process were this appropriation request not funded. 9:22:12 AM Mr. Merriner answered, "Like I said, from what I understand, and I have the documentation here, it appears that $228,000 had been obligated to date. In other words, by April 3rd, $228,000 have already been obligated in terms of printing and so if for some reason this supplemental was not to pass, we would have $228,000 that the Elections would have to somehow come up with that money." 9:22:56 AM Senator Dyson repeated his question that, if the election were cancelled, what would be the cost to mail notices to those who were mailed absentee ballots to disregard the ballots. 9:23:22 AM Mr. Merriner did not have an estimate. 9:23:28 AM Senator Dyson asked if any ballots had actually been mailed. 9:23:33 AM Mr. Merriner responded that ballots had been printed, but he was unsure whether any absentee ballots had been mailed to voters. 9:23:44 AM Co-Chair Hoffman asked if the election could only be cancelled through the passage of legislation; the election would still be held even if funding were not allocated. 9:24:11 AM Ms. Rehfeld affirmed that without a change in statue, the Division would be required to continue with the election. The Department of Law has advised the Division on the actions necessary to conduct this election. 9:24:42 AM Co-Chair Hoffman clarified that the only way the election could be canceled would be to pass legislation before the date of the election. 9:24:55 AM Ms. Rehfeld shared this understanding. 9:24:59 AM Mr. Merriner furthered that if the appropriation were not made, the Division would still incur costs, including the hiring of poll workers. However, the Division would be unable to pay the vendors and poll workers, ensuing in lawsuits for payment. 9:25:55 AM Ms. Rehfeld then noted that Sections 4 through 7 pertain to Lapse Provisions, Retroactivity, and Effective Date. 9:26:16 AM Co-Chair Hoffman established that the Committee had no questions on these items. Co-Chair Hoffman ordered the bill HELD in Committee.
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