Legislature(2021 - 2022)SENATE FINANCE 532
03/11/2021 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB55 | |
| Follow Up: Executive Order 119 - Reorganization of Department of Health and Social Services | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 55 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
SENATE BILL NO. 55
"An Act relating to employer contributions to the
Public Employees' Retirement System of Alaska; and
providing for an effective date."
9:04:16 AM
NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, discussed the presentation, "State
of Alaska, Office of Management and Budget, SB55Employer
Contributions to PERS, Senate Finance Committee, March 11,
2021" (copy on file). He looked at slide 2, "SB55 Employer
Contributions to PERS":
? Removes cap on Public Employee Retirement System
(PERS) payroll contributions made by the State of
Alaska as an employer
? Continues to fully fund state's obligation to the
PERS system
? Applies only to the State of Alaska, does not impact
other PERS employers
? Does not impact Teachers Retirement System (TRS)
? Does not change retiree benefits
? Does not reduce contributions to PERS
? Allows for full cost share with federal programs and
other sources used to fund state programs, thereby
reducing general fund expenditures by $25.7 million in
FY22
Senator Olson wondered why the other Public Employees'
Retirement System (PERS) employers were not included in the
presentation.
Mr. Steininger replied that other PERS employers, such as
municipalities, did not have access to those federal funds.
Senator Olson queried the reason for not including the
teachers retirement system (TRS).
Mr. Steininger replied that most of those employees did not
have a significant federal cost share, so there was not a
significant cost savings to the TRS employees.
Senator Olson wondered whether the other PERS employers
were in favor of the move.
Mr. Steininger replied that, initially, the municipalities
had concerns about the applicability of the change, but
they were supportive of the change.
Mr. Steininger highlighted slide 3, "SB55Background:
Alaska's Retirement Obligations":
? Alaska has four public employee retirement tiers
? Total annual obligation based on a blended
contribution rate
? Current cost of obligation split between "Employer
Obligation" and "On-Behalf
Payment"
o Employer contributions (22 percent) on employee
salaries mixed fund sources
o On-behalf payments for Municipalities and other
PERS employers 100 percent UGF
o On-behalf payment for State of Alaska as an
employer 100 percent UGF
? This bill addresses the on-behalf payment for State
of Alaska as an employer
9:10:56 AM
Co-Chair Stedman queried the history of the concept.
Mr. Steininger replied that over the last couple of years,
from FY 15 there was a large deposit into the pension
systems. He remarked that the deposit significantly reduced
the ongoing liability. He noted that there was an upward
trend to the payment, with a current $300 million payment
for the retirement. He stated that there had been ideas
about addressing the issue.
Co-Chair Stedman recalled a presentation in the previous
week that the unfunded liability payments were intended to
conclude at the end of century.
Mr. Steininger agreed, and stated that the unfunded
liability for the Tiers 1 through 3 retirement plan were
scheduled to end payments at the end of the century.
Co-Chair Bishop wondered whether there was federal guidance
to use federal money.
Mr. Steininger replied that there was work with the federal
groups that dealt with cost allocations to the state about
allowability.
9:16:53 AM
Senator Wilson surmised that the federal groups were on
board.
Mr. Steininger replied that there were discussions about
allocation of cost to determine the allowability of
application full actuarial right.
Senator Wilson queried any downsides to the state's federal
contractors.
Mr. Steininger replied that he had not heard any misgivings
about the proposal.
9:20:21 AM
Senator Wielechowski surmised that the proposal took a
portion of federal money for another department and use it
for retirement.
Mr. Steininger replied in the affirmative.
Senator Wielechowski surmised that there were not
additional federal dollars.
Mr. Steininger replied that it depended on the specific
federal program.
Senator Wielechowski remarked that the portion of money
intended for a project would not be taken from that
project, rather there was a loophole to take in more
federal dollars and not reduce the services.
Mr. Steininger replied in the affirmative.
Co-Chair Bishop wondered whether money would be reduced for
a specific project.
Mr. Steininger replied that the full money would still be
used for the project or department, but the cost would be
reflected higher, because it would reflect the true
actuarial retirement obligation to the employees working on
the roads.
9:25:05 AM
Senator Wilson wondered whether the proposal would affect
all federal grant programs.
Mr. Steininger replied in the affirmative.
Senator Olson wondered whether there were other states that
had a similar plan.
Mr. Steininger replied that every state was unique in their
handling of the obligations. He deferred to Mr. Barnhill to
discuss the states' handling of their unfunded liabilities.
Senator Olson surmised that no other state had the same
type of system in place.
Co-Chair Bishop stated that the committee may want to see a
spreadsheet on hypothetical projects with the potential
implementation.
Senator von Imhof requested an examination of the state and
federal match, with a determination of the possible
changing metrics over time.
9:30:07 AM
Senator Wielechowski wondered whether the percentage of
payroll could increase.
Mr. Steininger replied that the 30.11 percent of payroll
was calculated by the state's actuarial firm, which
determined that the actuarial liability was 30.11 percent
in FY 22.
Senator Wilson queried the number of federal grants that
were up for renegotiation in the upcoming year.
Mr. Steininger agreed to provide that information.
Senator Wilson wanted to know how soon there could be
actual data and outcomes to the committee.
Mr. Steininger replied that each year over the upcoming
years would begin to show the actual costs, and their fund
sources.
9:33:24 AM
Mr. Steininger pointed to slide 4, "SB55 State of Alaska
as an Employer Retirement Obligation Current Law." The
slide showed how the obligation was paid under current law.
He noted that employer contribution was 22 percent of
payroll.
Mr. Steininger addressed slide 5, "SB55 State of Alaska as
an Employer Retirement Obligation Proposed Law":
Savings will grow over time:
?Some programs show savings in year one
?Some cost allocations require 1 to 3 years to adjust
-dependent on negotiation of federal cost allocation
plans
Mr. Steininger noted that the total amount budgeted was
greater than under current law. He stated that actuaries
could not predict future factors.
Senator Wielechowski asked whether there was a reason that
it was not written in a way to have the federal government
pick up the cost for local, municipal, and borough
projects.
Mr. Steininger replied that it would only be possible if
the local communities were receiving significant federal
grants.
Senator Wielechowski felt that Fairbanks, Anchorage, and
Juneau received significant federal funds. He wondered what
was considered "significant."
Mr. Steininger replied that the additional cost on the
local communities would be greater than what they could
federally claim on their retirement contribution.
9:40:02 AM
Mr. Steininger discussed slide 6, "SB 55: FY2022 Budget
Impact." He pointed out that the bill did save money to UGF
spending, but shifted costs from the language section into
agency budgets.
Co-Chair Stedman wondered whether the historic costs could
be restated for an accurate comparison.
Co-Chair Bishop queried a handicap of the total budget
impact going backwards.
Mr. Steininger felt that there would be work to ensure
prevention any miscommunication.
Mr. Steininger looked at Handout A in the members' packets
(copy on file). He noted that it was a representation with
more detail that went to some earlier statements about the
implementation timing.
9:47:28 AM
Senator Hoffman queried the breakdown of the actual revenue
sources.
Mr. Steininger pointed to Handout B in the members' packets
(copy on file).
Co-Chair Bishop noted a $26 million savings.
Mr. Steininger agreed.
Senator Hoffman wondered whether item 1105 was the
Permanent Fund.
Mr. Steininger replied that the number paid for employees
in the Permanent Fund Division, and others in the
Department of Law. He agreed to provide further
information.
9:51:37 AM
Senator Wielechowski wondered whether the federal
government expressed concern about the 22 percent rate.
Mr. Steininger stated that the rate was established prior
to his time as a state employee, so he deferred to Mr.
Barnhill.
9:52:14 AM
MIKE BARNHILL, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE,
JUNEAU (via teleconference), stated that he was not aware
of any objections by the federal government to the
percentage rate.
9:52:49 AM
Mr. Steininger addressed slide 7, "Historical PERS
Contribution Rates."
Co-Chair Stedman remarked that it was important to reduce
the contribution after the larger influx.
Co-Chair Bishop OPENED public testimony.
Mr. Barnhill stated that he was not going to provide public
testimony, but would be available for historical comment.
Co-Chair Bishop CLOSED public testimony.
SB 55 was HEARD and HELD in committee for further
consideration.
9:57:26 AM
RECESSED
1:01:30 PM
RECONVENED
^FOLLOW UP: EXECUTIVE ORDER 119 - REORGANIZATION OF
DEPARTMENT OF HEALTH AND SOCIAL SERVICES
1:02:05 PM
Co-Chair Bishop stated that Governor Dunleavy had withdrawn
Executive Order 119. He remarked that the order had broad
support, but had some action items that needing addressing
over the upcoming months.
1:02:52 PM
STACIE KRALY, CHIEF ASSISTANT ATTORNEY GENERAL, DEPARTMENT
OF LAW, CIVIL DIVISION (via teleconference), discussed the
withdrawal of EO 119. She shared that efforts that were
undertaken by the administration to prepare the executive
order and present to the legislature were done with the
clear understanding of the scope and parameters of an
executive order. She remarked that an executive order was
an organizational change document to the Executive Branch
under the authority of the governor; and that there could
not be any substantive changes to state law through the
executive order. She remarked that, as a result, there was
not means to amend the executive order during legislative
review. She shared that the Department of Law (LAW) and the
Department of Health and Social Services (DHSS) did their
best to meet the goals with the understanding of those
limitations. She stressed that there was a potential for
mistakes and errors. She shared that Legislative Legal had
submitted a memorandum dated March 1, 2021, which outlined
some of the concerns with EO 119. She pointed out that
while LAW might agree with some of the substantive
conclusions outlined by Legislative Legal, she agreed that
there were substantive errors within the drafting of EO
119. She shared that after sharing the issues with the
governor, it was determined to withdraw EO 119. She
furthered that there would be a reintroduction of the
concept at a future date. She shared that the action of
withdrawal had occurred with other executive orders. She
shared that the conversation with Legislative Legal about
EO 119 helped to specify the vision of DHSS, and LAW was
able to get a better understanding of some of the
substantive concerns in the memorandum. She wanted the
transition to be a smooth as possible if and when the
eventual executive order was adopted.
Senator Hoffman wondered whether there would be work with
the legislature to include legislative findings in the next
executive order on the subject.
Ms. Kraly replied that the legislative findings that were
included in EO 119 existed in current statute, so there
were no new additions. She stated that, providing context
to the reorganizations would be helpful to outline some of
the concerns. She stated that additional legislative
findings would be considered substantive changes, would
require legislation, and therefore would not be included in
an executive order.
Senator Hoffman commented that each legislature may have
different view on a variety of topics that may not coincide
with a current legislature.
Ms. Kraly remarked that an executive order was strictly and
organizational endeavor. She agreed that the legislative
findings that were adopted in the past may not be the
purview of the current legislature. She stressed that the
legislative findings could not be amended in the executive
order, but could be changed through legislation.
1:09:09 PM
Senator Hoffman felt that the committee should look at the
legislative findings which may be included in a future
executive order before it becomes the draft.
Ms. Kraly agreed.
Senator Olson stressed that the legislature must be
involved in the process, and wondered whether there would
be more involvement with the legislature with the upcoming
executive order.
Ms. Kraly replied that there would be continued "robust
engagement" with the legislature and other stakeholders
when moving forward with the process.
Senator Wielechowski felt that the executive branch could
put legislative findings into a new section of law. He felt
that it was a clear violation of constitutional authority.
He surmised that there would be another executive order and
not a new piece of legislation.
Ms. Kraly replied that the department was evaluating all of
the options on how to pursue the policy of the
administration to bifurcate DHSS into two new departments.
She shared that they may pursue a new executive order or
legislation.
Co-Chair Bishop pointed out that there were questions from
the legislature and the governor had recognized those
concerns, resulting in LAW withdrawing EO 119.
Ms. Kraly agreed
Senator von Imhof hoped the committee would examine the
question of intent versus execution. She pointed out that
the intent was to bifurcate the "very large" Department of
Health and Social Services so that Juvenile Justice, the
Pioneer Homes, Alaska Psychiatric Institute (API), and the
Office of Children's Services (OCS) could have the time and
allocation needed to properly function. She stressed that
the intent was to improve the divisions, especially OCS.
She shared that she was the chair of the Health and Social
Services subcommittee, so she understood the challenge. She
remarked that the execution may not seem appropriate or
correct. She hoped that the intent of EO 119 was honest,
and felt that it was for the good of Alaska.
Co-Chair Bishop asked for any comments regarding the
questions from committee members.
1:15:18 PM
ADAM CRUM, COMMISSIONER, DEPARTMENT OF HEALTH AND SOCIAL
SERVICES, WASILLA (via teleconference), restated that the
governor had withdrawn EO 119, because there were some
required technical changes. He reiterated that the reform
was necessary. He stressed that there needed to be trust
from the legislature in order for the reform to be
successful. He shared that there would be continued
meetings with groups and stakeholders. The hope was for
full transparency that a technical issue was identified,
and hoped to move forward with the bifurcation plan. He
agreed that there should be a partnership with the
legislature as identification of certain items come to
light. He looked forward to the continued engagement to
ensure that the questions were addressed in the new path
forward.
Senator Wilson congratulated Commissioner Crum on the birth
of his child.
Co-Chair Bishop