Legislature(2007 - 2008)SENATE FINANCE 532
05/02/2007 01:30 PM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB124 | |
| SB125 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 125 | TELECONFERENCED | |
| += | SB 124 | TELECONFERENCED | |
| += | SB 104 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE BILL NO. 125
"An Act relating to the accounting and payment of
contributions under the defined benefit plan of the Public
Employees' Retirement System of Alaska, to calculations of
contributions under that defined benefit plan, and to
participation in, and termination of and amendments to
participation in, that defined benefit plan; making
conforming amendments; and providing for an effective
date."
This was the fifth hearing for this bill in the Senate Finance
Committee.
Co-Chair Stedman specified that this legislation, referred to as
the "cost share bill", pertained to the retirement funds of the
majority of municipalities in the State.
Co-Chair Stedman advised that a new committee substitute had
been developed. The intent is that this forthcoming committee
substitute, which incorporated the issues discussed by the
Committee, would be reported from Committee.
2:27:45 PM
Co-Chair Hoffman moved to adopt committee substitute, Version
25-GS1074\O, and it's accompanying fiscal notes as the working
documentation.
Co-Chair Stedman pointed out that Members' bill packets also
contained a "side-by-side comparison" titled "Analysis of
Changes CSSB 125 vs. SB 125" [copy on file] which compared
language differences between Version "O" and the original
version of the bill. A five page spreadsheet titled "CSSB 125
Rate Backup: Impact on 22% Employer Rates of Hold Harmless and
Recoup provisions" [copy on file] had also been distributed.
2:28:47 PM
MILES BAKER, Staff to Co-Chair Stedman, directed his remarks to
the "Analysis of Changes CSSB 125 vs. SB 125" side-by-side
comparison. Sections of Version "O" that mirrored language in
the previously adopted committee substitute, Version 25-
GS1074\K, would not be discussed as those changes had been
addressed during the overview of that committee substitute on
April 28, 2007.
Mr. Baker announced that the first change that would be
addressed was the addition of a new section, Sec. 4, on page 3
beginning on line 5. This section addressed concerns regarding
how the 22 percent Public Employees Retirement System (PERS)
employer contribution rate would be allocated. It clarified that
employers must allocate three percent of the 22 percent to the
Health Reimbursement Arrangement (HRA). Part of the confusion
was that HRAs were specified in a different State Statute than
the Statute pertaining to the contribution rate.
2:31:24 PM
Mr. Baker identified the next change as being in Sec. 19, page 9
line 14. While Sec. 4 addressed the HRA allocation concern
regarding PERS, this change would similarly clarify the Teachers
Retirement System (TRS) employer contribution rate allocation to
the HRA account.
2:32:42 PM
Mr. Baker announced that the most substantial change in Version
"O" is in Sec. 21, page 9, line 20. He referred the Committee to
the aforementioned five page spreadsheet. Sec. 21 addressed the
concern that the hold harmless provisions in the previous bill
versions only applied to PERS employers. This section was
revised to include TRS employers who employed PERS members.
Mr. Baker continued. Sec. 21(a) established the appropriate
contribution rate for FY 2008 (FY 08). This enabled those
employers "who had paid excess into the system over the last
three years to recoup that excess amount".
Mr. Baker specified that Sec. 21(b) would specify the employer
contribution rates for FY 09 through FY 12.
Mr. Baker also communicated that the five-year hold-harmless
provision "would bring some parity" to those employers whose
contribution rates had been "substantially below" 22 percent.
This parity effort also considered those entities who had been
paying substantially more than 22 percent and who would
experience "a substantial savings in their general fund budget".
Mr. Baker directed attention to the five page spreadsheet and
noted that the information it depicted, in essence, "justifies
the percentages that are in the bill". The first two pages deal
with the PERS political subdivisions; page 3 deals with entities
referred to as "PERS Other". This would include entities such as
the Alaska Municipal League, the Southeast Regional Resource
Center, and the Tlingit Housing Regional Housing Authority. Page
4 depicts school districts and page 5 is a summary of the total.
2:35:36 PM
Mr. Baker communicated that the spreadsheet contains information
on projected wage bases, entities' FY 07 contribution rates, the
amount paid in FY 07 as calculated at the FY 07 employer
contribution rate formula, the Alaska Retirement Management
Board (ARMB) recommended rate for FY 08, and the "gain/loss" on
that rate as affected by the 22 percent "fix".
Mr. Baker, using the spreadsheet as a tool, exampled the savings
that an entity such as Fairbanks, whose prior contribution rates
were significantly above the proposed 22 percent employer
contribution rate, would experience.
Mr. Baker also exampled the affect of the proposed 22 percent
rate on entities whose FY 07 contribution rate or FY 08 rate,
based on the ARMB adopted rate, was below 22 percent. Any such
community with a dollar amount showing in Column (9) would be
subject to the "hold-harmless" credit provision. The result of
that recalculation is depicted in Column (10).
Mr. Baker next spoke to columns (12) through (18). Any community
that had paid an excess contribution amount in FY 05, FY 06, or
FY 07 would have an amount reflected in Column (15). The total
excess amount paid by communities was $7,194,207. These entities
rates would be adjusted to allow them to recoup their overage in
the fiscal year following the enactment of this legislation.
Mr. Baker specified however that some of the communities that
made excess contributions had also contributed at a rate less
than 22 percent. They would also be subject to the hold harmless
provision. The total affect of the credit adjustments reflected
in the bill on their rate was depicted in Columns (19), (20),
and (21).
AT EASE 2:39:26 PM / 2:39:38 PM
Mr. Baker continued to address the calculations reflected in
Columns (19) through (21). The provisions pertinent to these
adjustments are included in Sec. 21 of the bill.
2:40:08 PM
Mr. Baker informed that the entities depicted on page 3 of the
spreadsheet were not addressed in the previous committee
substitute, as it had not included provisions pertinent to "PERS
Other" employers. The format of the information on this page
mirrored that of pages 1 and 2.
Mr. Baker stated that page 4 of the spreadsheet depicted the
affect of this legislation on school districts. The hold-
harmless provisions would also apply to districts such as the
Nenana School District, which had previously paid a contribution
rate below 22 percent. The total hold-harmless amount for school
districts was $1,102,187.
2:41:38 PM
Mr. Baker referred Members to the totals depicted on page 5. The
total five year annual hold-harmless amount is specified at
$5.15 million. He allowed that slight adjustments to this amount
might occur as payrolls fluctuated. The State would be required
to contribute any amount required beyond the maximum 22 percent
employer contribution rate.
Mr. Baker reminded the Committee that the City of Soldotna had
contributed an excess amount of one million dollars in FY 05.
Even after re-calculating their FY 08 rate to zero, that overage
could not be recouped in one year. Thus, they were added to the
hold harmless column and their rate would be adjusted over a
five-year period as reflected on page 5. As a result, $255,246
was added to the $5.15 million hold-harmless amount for FY 08.
Mr. Baker also noted that "one-time FY 08 rebate costs to the
State" of $7,194,207 would also be added for a total FY 08 cost
of $12,579,579. The State's costs for each of the following four
years would be $5,385,372. The rebate expense would not be a
factor.
Mr. Baker noted that this expense was a component of the
Department of Administration's fiscal note.
2:43:58 PM
KEVIN BROOKS, Deputy Commissioner, Department of Administration,
thanked Mr. Baker for developing the five-page spreadsheet. It
was helpful to the Department when they compiled this
complicated fiscal note.
Mr. Brooks reminded the Committee that Governor Sarah Palin
based her FY 08 operating budget on the employer contribution
rates that were calculated last fall. The State's PERS
contribution rate at that time was projected to be 44 percent.
The average PERS employer rate at the time was 39 percent.
Mr. Brooks specified that "the increases for that rate increase"
have since been "backed out" of the operating budget. The
operating budget in its current form specifies 22.5 percent for
the State's employer contribution rate. This was the current FY
07 rate. That number was the starting point for developing the
Department's fiscal note.
2:45:40 PM
Mr. Brooks also noted that the FY 08 operating budget, as
presented in HB 95-APPROP: OPERATING BUDGET/LOANS/FUNDS,
included a $180 million appropriation for PERS. That number
should be subtracted from the $193,113,200 FY 08 expense
depicted in the April 30, 2007 fiscal note. Thus "the
differential" increase is $13,100,000. $12,600,000 of that
reflects the $5.4 million in hold harmless money and the $7.2
million rebate provision. The $500,000 remaining variance could
be the result of various changes in formulas.
2:47:22 PM
Mr. Baker attested that a variance in the numbers was
inevitable, "depending on which numbers were run". The
calculation was based on projected salaries for all the
employers and the FY 05 valuations. The mechanics of the
calculation would attribute to the seemingly "half million
dollar rounding error".
Co-Chair Stedman acknowledged the explanation.
2:47:59 PM
Mr. Brooks noted that this concluded his fiscal note comments.
He was available to answer Committee questions.
2:48:11 PM
Senator Olson asked whether the $180 million the Governor
included in the FY 08 operating budget should also be subtracted
from the $218,287,000 FY 09 expense depicted on the fiscal note.
Mr. Brooks clarified that the entire amount depicted on the
fiscal note would be required in the out-years. As specified in
the bill, the State would be obligated to provide any amount
beyond the 22 percent paid by employers. He understood that
going forward that annual appropriation would not be included in
the operating budget. Thus, $218,287,000 would be required in FY
09. As the result of provisions in the bill, this amount is
expected to decline in FY 2011.
2:49:19 PM
LARRY SEMMENS, Finance Director, City of Kenai, testified via
teleconference from an offnet location and thanked the
Committee, the Legislature, and the Administration for the hard
work on this bill. He was pleased with the results and supported
the bill being moved forward.
Mr. Semmens informed the Committee that the Alaska Retirement
Management Board (ARMB) recently passed a resolution specifying
that if the direction of the bill continued "in its present
form", they would "support lowering the employer average rate to
32.51 percent".
2:50:18 PM
Co-Chair Stedman thanked Mr. Semmens for the contribution he has
made in addressing this issue.
2:50:28 PM
KATHY WASSERMAN, Alaska Municipal League (AML), spoke in "full
support" of the bill. She also appreciated the efforts exerted
to develop this bill; particularly those of Commissioner Annette
Kreitzer and Melanie Millhorn with the Department of
Administration; Miles Baker with Co-Chair Stedman's office;
Larry Semmens, Michael Lamb, and Co-Chair Stedman.
Ms. Wasserman expressed that this legislation would provide
"some closure to a very, very huge controversial issue" to AML
members and others.
2:52:00 PM
Co-Chair Hoffman acknowledged the effort put into this bill;
however, he exclaimed there being "no rhyme or reason to the
problems that people are experiencing above the 22 percent, and
I think that that goes to the Chairman when he looked at
resolving this problem. There still is some inequities in what I
perceive as assistance to those communities and we are still
contemplating a revenue sharing bill that can try to bring some
resemblance of fairness to the other communities that aren't
participating in PERS".
Co-Chair Hoffman asked Ms. Wasserman whether AML continued to
support the development of "a revenue sharing program with some
resemblance of fairness to offset the big beneficiaries of this
legislation".
Ms. Wasserman answered in the affirmative. AML hoped there would
be "some cash infusions" to help those communities that are in
need.
2:53:40 PM
Senator Elton voiced appreciation for the work conducted by Co-
Chair Stedman and his staff on this bill.
Co-Chair Hoffman repeated his earlier motion to adopt committee
substitute, Version 25-GS1074\O as the working document.
There being no objection, Version "O" was ADOPTED.
Co-Chair Hoffman moved to report the bill from Committee with
individual recommendations and accompanying fiscal notes.
Co-Chair Stedman repeated the motion and specified that the
spreadsheet would be included as part of the fiscal note.
There being no objection, CSSB 125(FIN) was REPORTED from
Committee with new $193,113,200 fiscal note from the Department
of Administration, dated April 30, 2007.
[NOTE: Co-Chair Stedman ordered a four-page March 29, 2007 Buck
Consultants response letter [copy on file], addressed to Kathy
Lea, Retirement Benefits Manager, Department of Administration,
regarding an unidentified PERS Analysis Request [copy not
provided] to be attached to the Committee Report.]
Co-Chair Stedman thanked the Committee for the attention
provided to this bill. It was a step forward in addressing the
State's retirement system issue.
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