Legislature(2011 - 2012)BELTZ 105 (TSBldg)

03/29/2011 02:00 PM LABOR & COMMERCE

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Heard & Held
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved SB 78 Out of Committee
Moved SCS CSHB 28(L&C) Out of Committee
                 SB 100-PERS TERMINATION COSTS                                                                              
2:12:17 PM                                                                                                                    
CHAIR EGAN announced SB 100 to be up for consideration.                                                                         
SENATOR  PASKVAN  moved to  bring  SB  100, labeled  27-LS0272\D,                                                               
before committee for discussion purposes.                                                                                       
CHAIR EGAN objected.                                                                                                            
SENATOR PASKVAN  explained the  purpose of SB  100 arises  out of                                                               
his discussion with Michael Lamb,  the Chief Financial Officer of                                                               
the  Fairbanks North  Star Borough,  in which  they were  talking                                                               
about a problem  that exists when a borough tries  to be flexible                                                               
in its  programs and  may want  to do something  for a  couple of                                                               
years and  then transition  to a different  type of  program. The                                                               
question is  when they potentially transfer  those employees from                                                               
one program to  another there is this termination  study that has                                                               
a resulting cost  burden that can be applied even  if there is no                                                               
change  in  the overall  number  of  employees (of  a  particular                                                               
municipality or school  district). In short, as a  result of that                                                               
conversation  he presented  a  bill  a year  ago  and it  quickly                                                               
became apparent that the details were pretty significant.                                                                       
2:14:17 PM                                                                                                                    
MICHAEL  LAMB,  Chief  Financial Officer,  Fairbanks  North  Star                                                               
Borough, said he is also president  of the Board of the Municipal                                                               
League Investment  Pool and co-chairman  of the  Alaska Municipal                                                               
League's Finance  sub-committee. He said  his comments on  SB 100                                                               
are supported  by the Alaska  Municipal League (AML).  He thanked                                                               
them  for  the  opportunity  to   testify  on  how  crucial  PERS                                                               
employers feel  getting SB 100  passed into law this  session is.                                                               
The following statement captures what he said:                                                                                  
     Given  the  very real  press  of  time for  legislative                                                                    
     action this session, my comments  today are going to be                                                                    
     purposely direct. I'm  going to be as  transparent as I                                                                    
     can  conveying  what  AML member  employers  feel  that                                                                    
     there   exists  a   compelling   need   to  adopt   the                                                                    
     disciplined  and  exactly  focused  limited  change  to                                                                    
     those  parts  of  state   law  that  order  termination                                                                    
     studies. Very  simply, because of the  'shall' language                                                                    
     in  state statutes,  regulatory action  cannot fix  the                                                                    
     problems I'm going to explain  to you today. Regulation                                                                    
     cannot  override statutory  directives,  thus the  need                                                                    
     for  this  legislative fix  to  a  few detrimental  and                                                                    
     unanticipated consequences of  certain language adopted                                                                    
     in SB 125.                                                                                                                 
     Let  me   commence  by  addressing   three  significant                                                                    
     questions that some  may have about SB  100. With these                                                                    
     relevant questions  addressed, you  can cast  them from                                                                    
     your minds  and I can focus  my time on why  passage of                                                                    
     SB 100 is so critical and compelling.                                                                                      
2:17:11 PM                                                                                                                    
     Number one, first  and foremost, let me  convey with no                                                                    
     ambiguity  at  all,  SB  100  has  absolutely  nothing,                                                                    
     nothing and nothing to do  with the defined benefit, DB                                                                    
     versus  defined   contribution,  the  DC   issue.  That                                                                    
     controversy, that  discussion, is real  as it is  and I                                                                    
     acknowledge that  has no place  and should be  given no                                                                    
     standing when  considering SB 100.  For purposes  of SB                                                                    
     100, the DB versus DC issue  is not relevant - period -                                                                    
     other  than to  create and  foster fear  when any  PERS                                                                    
     legislation  is under  consideration.  Let  us not  let                                                                    
     fear rule the  day or impede our doing  the correct and                                                                    
     proper  thing  that  is  so  demanded  and  so  clearly                                                                    
     Secondly, it  is the  view and  formal position  of AML                                                                    
     PERS  member  employers  that their  desire  and  their                                                                    
     respectful request  to legislators is that  there be no                                                                    
     amendments made  to SB 100.  It is exacting in  what it                                                                    
     accomplishes and should be  adopted exactly as drafted.                                                                    
     Should SB 100  be used to hang any amendment  to it for                                                                    
     any purpose,  absolutely and unequivocally NO.  It is a                                                                    
     single-issue focus  bill to fix a  specific problem and                                                                    
     it should  be left  untainted by any  other legislative                                                                    
     Thirdly, and let me say  with clarity and purpose, that                                                                    
     my integrity  and my reputation and  my credibility are                                                                    
     sacred to me and I stand  as a vanguard to them always.                                                                    
     And knowing that this, what if  so, if I were asked are                                                                    
     PERS employers  trying to sidestep their  obligation to                                                                    
     help pay down  the unfunded obligation or  asked has SB                                                                    
     100 been in any way  constructed or intended to be used                                                                    
     for this  purpose, I  unequivocally say  NO. I  guess I                                                                    
     would also  say with  some confidence  that no  one has                                                                    
     talked   or  communicated   with  more   people  and/or                                                                    
     communities on this  issue in this state than  me and I                                                                    
     say to you  not in one conversation, not  in one e-mail                                                                    
     and  not  in one  letter  relating  to the  termination                                                                    
     study issues  has it  ever been  discussed in  any way,                                                                    
     shape or form that  PERS employers could sidestep their                                                                    
     financial   obligation  or   shift  any   PERS  funding                                                                    
        responsibilities to the state through or by this                                                                        
MR.  LAMB recalled  that  in 2008  the  Alaska State  Legislature                                                               
passed SB  125 that helped  Alaska's PERS  employers tremendously                                                               
by  adopting  the flat  statutory  22  percent rate.  It  brought                                                               
predictability,  affordability and  stability  to the  employers'                                                               
rate.  When SB  125 was  crafted, legislators  did not  intend to                                                               
create  any  inequitable  financial  damage to  any  PERS  member                                                               
employer  nor negatively  interfere  with the  current or  future                                                               
delivery   of  any   member  services   or  programs   which  the                                                               
termination study law clearly and conclusively does.                                                                            
2:21:30 PM                                                                                                                    
MR. LAMB  said that  Marvin Smith,  Manager, Bristol  Bay Borough                                                               
told  Representative Edgmon  and Senator  Hoffman that  presently                                                               
they have decided  not to add or delete any  positions until this                                                               
issue is  resolved. Therefore, their  government can't  expand or                                                               
shrink as good management should be allowed to do.                                                                              
He  said that  "2AAC  35.235 (calculation  of termination  costs)                                                               
states (a)  an employer  that proposes  to terminate  coverage of                                                               
the  department,  group  or   other  classification  employee  or                                                               
terminate participation  of the employer must  have a termination                                                               
study completed  by the plan  actuary to determine  the actuarial                                                               
cost  to the  employer for  future benefits  due employees  whose                                                               
coverage is terminated.                                                                                                         
He  said  that  defined  contribution employees  have  no  future                                                               
actuarial  costs.  Further, (b)  says  in  addition to  the  cost                                                               
calculated in  (a), the employer is  required to pay to  the plan                                                               
until the past  service liability to the plan  is extinguished an                                                               
amount  calculated  by applying  the  current  past service  rate                                                               
adopted by  the board for  salaries of the  terminated employees.                                                               
This payment shall be made each payroll period.                                                                                 
2:22:48 PM                                                                                                                    
MR.  LAMB said  the problem  is if  a PERS  employer reduces  his                                                               
employee count  because it made  a decision to change  or suspend                                                               
one of its program or services  or simply moved some of its human                                                               
resources to  where they are  most needed (even a  single person,                                                               
such  as  a single  disaster  response  coordinator at  a  school                                                               
district), then  per 2AAC  36.235, PERS  very possibly  will send                                                               
that employer  three bills:  the first  will be  for the  cost of                                                               
doing  an actual  termination  study  ($2,500-5,000), the  second                                                               
will  be what  the  study says  you  owe the  system  due to  the                                                               
employee changes  you made  and the  third bill  is the  one that                                                               
will require  the employer to pay  the past service cost  on each                                                               
of the positions salaries the PERS  said you needed to opt out of                                                               
PERS; currently  that's $18.63 until  the unfunded  obligation is                                                               
paid off - maybe 30 years from now.                                                                                             
He explained that as he reads  about the assumption, he and Larry                                                               
Semmens,  who both  have a  great  deal of  understanding of  the                                                               
system, wonder if  the past service liability  ever actually gets                                                               
extinguished,  essentially  making   these  termination  payments                                                               
perpetual payments on the backs of PERS employers.                                                                              
MR.  LAMB said  these  three bills  could  cumulatively run  from                                                               
hundreds of thousands  of dollars to several  millions of dollars                                                               
per  each termination  study incident.  The underlying  fear that                                                               
certain  PERS employers  would  purposely act  in  a manner  that                                                               
jeopardized payment  of the unfunded  obligation and  thus shrink                                                               
the salary base that pays  the unfunded obligation simply has not                                                               
happened. The total  PERS salary base must be  sustained and have                                                               
reasonable  growth, which  it  has  to the  tune  of about  19.50                                                               
percent  since  June  30,  2008  when the  floor  was  set.  It's                                                               
important  to  absorb  and  digest the  fact  that  the  statutes                                                               
already have  a salary  base floor that  all PERS  employers must                                                               
pay the 22 percent on even  if they completely exited the system,                                                               
he said.  SB 100 actually statutorily  reinforces this obligation                                                               
by its  amendment to Sec.  1 of AS  39.35.255, which added  a new                                                               
subsection (i) that reads:                                                                                                      
     (i)After  an  employer's   participation  in  the  plan                                                                    
     terminates  with   regard  to   some  or  all   of  the                                                                    
     employer's  employees who  are  active  members of  the                                                                    
     system,   the  employer   remains  obligated   to  make                                                                    
     contributions under  (a) of this section  (which is the                                                                    
     greater of 22 percent times  your current salary or the                                                                    
     6/30/08) until  the plan does  not have a  past service                                                                    
2:26:16 PM                                                                                                                    
He said the future stability  of PERS employers and their ability                                                               
to  efficiently  and effectively  manage  the  delivery of  their                                                               
programs and  services is being directly  and negatively impacted                                                               
by 2AAC  35.235. What  is exceedingly  frustrating for  all other                                                               
PERS  employers, except  for  the state,  is  that equitable  and                                                               
consistent application  of the state's  termination law  does not                                                               
seem to  be occurring,  nor likely  can it  ever occur  given the                                                               
uniqueness of all PERS employers' positions.                                                                                    
A law  like this  that has  such a  material financial  impact on                                                               
PERS  employers  should,  at  a   minimum,  be  able  to  fairly,                                                               
equitably and consistently be applied  to all PERS employers. Yet                                                               
the Division  of Retirement and  Benefits has taken  the position                                                               
that the state  with half of the PERS salary  base ($1 billion of                                                               
a  $2 billion  annual  salary base)  is  exempt from  termination                                                               
studies  and  their  financial impacts.  A  simple  straight-line                                                               
calculation of the unfunded liability  tells one that one-half of                                                               
the obligation  must belong to  the state,  but the state  as the                                                               
biggest PERS  employer isn't subject  to that portion of  the law                                                               
per retirement  benefits. The  state is subject  to the  June 30,                                                               
2008  portion of  the law  for  retirement benefits  but not  the                                                               
termination portion  of the law  and this  significantly disturbs                                                               
other PERS employers (an understatement).                                                                                       
2:27:29 PM                                                                                                                    
MR. LAMB  said that he has  talked to many attorneys  and none of                                                               
them have  found any such  written exception or exclusion  in the                                                               
law.  Just  as  concerning  is  the  fact  that  the  termination                                                               
language inescapably creates an  inequitable impact on small PERS                                                               
employers. Many  small communities have  only one employee  for a                                                               
program or a service.   If they lose a grant  or simply are faced                                                               
with budget  constraints have to  cut one person, say  their only                                                               
school nurse, then  they would be required to  have a termination                                                               
study done;  then pay  all of  the related  costs -  just because                                                               
they actually cut  a function or a group. A  large employer could                                                               
cut  10 nurses,  but as  long  as they  kept at  least one  nurse                                                               
employed no termination  study would be required.  Only the small                                                               
school districts get financially impacted by the currently law.                                                                 
MR. LAMB  said, "If you  want to drive  some of our  very limited                                                               
education dollars  right out of  the classroom then keep  the law                                                               
the way  it is. SB  100 effectively helps keep  education dollars                                                               
in the classroom."                                                                                                              
2:29:10 PM                                                                                                                    
He explained that  amazingly and contrary to  good public policy,                                                               
termination studies  negatively impact decisions and  the ability                                                               
to accept  grants because of  their potential  future termination                                                               
study  liability. Grant-funded  positions may  become subject  to                                                               
the termination studies once the  positions are terminated due to                                                               
grant funding  ending even if  brand new DC employees  were hired                                                               
with those grant  funds. An extract from  a communication between                                                               
Larry Semmens, city manager for Soldotna, posed this question:                                                                  
     The city of Soldotna recently received a grant to fund                                                                     
      the new police position for three years. Part of the                                                                      
     grant application was to  create a lieutenant position.                                                                    
     The  city  has not  had  this  position previously.  My                                                                    
     concern is that  at the end of the four  year period if                                                                    
     the city is unable to  fund the position and eliminates                                                                    
     the  lieutenant's position,  the  city will  be on  the                                                                    
     hook  for  a  termination  study and  paying  the  past                                                                    
     service liability rate for an  unlimited time period on                                                                    
     this position,  which didn't come into  existence until                                                                    
     I  base   this  on   my  assumption  the   Division  of                                                                    
     Retirement  and  Benefits   would  determine  that  the                                                                    
     single  position constitutes  a group  since it  is the                                                                    
     only position with the title 'lieutenant.'                                                                                 
MR. LAMB said this response was sent:                                                                                           
     I see from  your email that the City  of Soldotna chose                                                                    
     to pursue grant  funding for a new  police position and                                                                    
     have  created a  lieutenant  position as  part of  that                                                                    
     grant  application.  You  are   correct  that  if  this                                                                    
     lieutenant position is  the only one in  the city, then                                                                    
     it constitutes  the only of its  classification. If the                                                                    
     position  created  is  PERS  eligible  and  the  city's                                                                    
     participation agreement  is not  amended to  exclude it                                                                    
     from PERS,  termination costs  will be  calculated when                                                                    
     the city removes it from PERS.                                                                                             
     Taking  advantage  of  grant opportunities  to  improve                                                                    
     services  to  the  public  is   a  decision  for  local                                                                    
     officials  to   make  for  themselves.  Part   of  that                                                                    
     decision  process  must include  consideration  whether                                                                    
     the  positions  resulting  from  the  grant  should  or                                                                    
     should not be included  in PERS. Our recommendation for                                                                    
     any  position which  has  uncertain  future funding  is                                                                    
     that it not be placed in the PERS.                                                                                         
2:31:27 PM                                                                                                                    
MR. LAMB  said that  employers could  find themselves  paying the                                                               
past service cost  rate on former grant  funded position salaries                                                               
with  and from  other  finite revenues  once  those grant  funded                                                               
positions are ended.  It was amazing to him that  the Division of                                                               
Retirement   and  Benefits   suggests   excluding  grant   funded                                                               
positions  from  PERS   as  its  solution  to   the  problem.  He                                                               
     Why would  we as  a policy seek  to minimize  or reduce                                                                    
     the total  salary base  used to  pay down  the unfunded                                                                    
     obligation  by  excluded  grant  salary  dollars?  That                                                                    
     solution  is 180  degrees off  course. We  ought to  be                                                                    
     finding every grant dollar we can  and do all we can to                                                                    
     be sure as  many dollars as is  reasonably possible are                                                                    
     salary  dollars  helping  to   pay  down  the  unfunded                                                                    
He said  it is  also surprising  that no  offsets are  taken into                                                               
account for salary increases in  one area or decreases in another                                                               
area. In  other words, the  ability for entities to  adjust their                                                               
programs  and  services  to meet  their  constituents'  needs  is                                                               
negatively impacted by the current law.                                                                                         
2:32:42 PM                                                                                                                    
Essentially the  same salary dollars  that were shifted  could be                                                               
billed  not only  at  the 22  percent, but  the  18 percent  past                                                               
service cost rate  on top of it  - for an effective  PERS rate of                                                               
40  percent  on  those  salaries. A  communication  from  DRB  to                                                               
Senator Paskvan's aide, Mr. Stepp,  on February 14 promised him a                                                               
response  today   regarding  their  review  an   analysis  of  AS                                                               
39.35.625  and  AS 39.35.255  and  it  said they  recognized  and                                                               
agreed that the construction of  the two statutes would result in                                                               
employers being  double-charged for contributions on  salaries of                                                               
employees for whom coverage is terminated.                                                                                      
MR. LAMB said  that SB 100 fixes this travesty  and that there is                                                               
no regulatory authority to fix  or override the statutes for this                                                               
issue. Once you  start shifting employee resources  from one area                                                               
of responsibility  to another  and start  paying 40  percent, you                                                               
start  a  negative  downward  spiral   in  program  and  services                                                               
delivery. And  the consequence of  the termination study  is that                                                               
it effectively  nullifies the  intent of SB  125, which  was that                                                               
employers pay  the exact same rate.  It is clear that  one result                                                               
of these termination studies is  that different employers will be                                                               
paying  different net  rates and  therefore there  will not  be a                                                               
single  uniform contribution  rate  for all  PERS employers.  The                                                               
adoption  of SB  125 was  based on  the acknowledgement  that the                                                               
state did not  have a single agent multiple  employer system, but                                                               
a  consolidated  although  inequitable  cost  share  system.  The                                                               
intent of SB 125 was that  all employers would pay the exact same                                                               
rate.  That  cannot  happen when  each  employer  pays  different                                                               
termination cost amounts or they pay none at all.                                                                               
It is clear that all  PERS employers support a sustainable salary                                                               
base to pay off the PERS  unfunded obligation. It also is crystal                                                               
clear that the  termination language in SB 125 was  a solution to                                                               
a  problem  that  never  materialized  and  is  not  needed.  The                                                               
negative consequences,  the additional  charges and  the payments                                                               
that   result   from   the  termination   language   were   never                                                               
contemplated  or  intended  by   the  legislature  and  they  are                                                               
destructive and divisive.                                                                                                       
2:36:12 PM                                                                                                                    
AS 39.35.625,  which requires termination  studies and  any other                                                               
similar  statute  or  regulation  should be  repealed,  Mr.  Lamb                                                               
concluded, and that is precisely what SB 100 accomplishes.                                                                      
2:40:01 PM                                                                                                                    
CHAIR EGAN asked Mr. Semmens if he wanted to add anything.                                                                      
2:40:32 PM                                                                                                                    
LARRY SEMMENS,  Manager, City of Soldotna,  said he is a  CPA and                                                               
was very  involved in  the process  of adopting  SB 125  in 2008.                                                               
Given this  involvement, he said  he was embarrassed to  say that                                                               
he didn't know  how these termination studies were  going to work                                                               
until  the  Division  of  Retirement  and  Benefits  adopted  the                                                               
regulations and  began enforcing  the law. After  much discussion                                                               
with DRB, he is now convinced  that a statutory change is needed.                                                               
He is very concerned about the  impact of the law particularly on                                                               
small municipalities  or school  districts because  it apparently                                                               
requires  a termination  study  to  be conducted  at  any time  a                                                               
department  group or  other classification  that was  paying into                                                               
the system for any reason stops paying into the system.                                                                         
He explained that  in small municipalities a group  is often made                                                               
up of  a single position;  consequently they will be  required to                                                               
pay the state's  actuary to conduct a termination  study, pay the                                                               
resulting cost identified  in the study and pay  the past service                                                               
rate contribution on the salary  projected - even though there is                                                               
no continuing  salary. It makes  it impossible for  PERS employer                                                               
members to manage staffing levels.                                                                                              
He emphasized that SB 100  does not eliminate termination studies                                                               
for everyone.  If a member employer  terminates all participation                                                               
in the  plan, that employer will  still be required to  conduct a                                                               
termination study and pay the  resulting costs. And employers are                                                               
still required  to pay their fair  share in that the  2008 salary                                                               
floor  is  still  in  place.  This was  the  provision  that  was                                                               
intended  to  prohibit  a  PERS   employer  from  escaping  their                                                               
obligation for unfunded liability of  the system. Setting a floor                                                               
for contribution  calculations ensures  that one employer  is not                                                               
going to  contract out a  significant portion of  their operation                                                               
thus reducing salaries and thus  avoiding paying their fair share                                                               
of the debt.                                                                                                                    
MR. SEMMENS  said he supported  Mr. Lamb's testimony and  is also                                                               
shocked that  the Division of  Retirement and  Benefits considers                                                               
the state,  which is  the largest  member of  PERS, to  be exempt                                                               
from  these  regulations.  All   large  employers  are  minimally                                                               
impacted  because  typically  they have  larger  departments  and                                                               
larger groups  of employees and  are able to  eliminate positions                                                               
without eliminating an entire group.  But it's extremely punitive                                                               
to small  school districts. He urged  them to act swiftly  on the                                                               
2:45:45 PM                                                                                                                    
MARK  LYNCH, Manager,  City  of Cordova,  said  he supported  all                                                               
previous testimony. The  city understands they have  to pay their                                                               
fair share  of unfunded the  liability, but  he needs to  be able                                                               
manage personnel so that his  decisions are in the best interests                                                               
of his community. He  needs the law to be clear  so that he won't                                                               
end  up  somewhere down  the  road  paying  both a  past  service                                                               
liability  and  the  current  PERS retirement  fee  on  the  same                                                               
individual or  position. He said  he honestly believes  that PERS                                                               
believes that statute  provides it with the right  to hold cities                                                               
on  the hook  indefinitely for  any position  that is  terminated                                                               
from PERS  and the picture  is as bleak  as Mr. Lamb  painted it.                                                               
His city attorney believes the same.                                                                                            
2:48:32 PM                                                                                                                    
JON  BOLLING,   City  Administrator,  City  of   Craig,  said  he                                                               
supported SB  100. He  said Craig is  a first  class municipality                                                               
with a population  of 1,201 persons and has  two departments that                                                               
are  caught up  in  these very  difficult circumstances.  Without                                                               
passage of  SB 100 the  financial impacts will be  very difficult                                                               
for them to manage.                                                                                                             
2:49:51 PM                                                                                                                    
PATRICK COLE, Chief  of Staff, City of  Fairbanks, stated support                                                               
of SB 100.                                                                                                                      
2:50:29 PM                                                                                                                    
DANIELLE   FEGLEY,    Acting   Director,    Employee   Relations,                                                               
Municipality  of Anchorage,  supported SB  100. Reinforcing  this                                                               
position  is their  experience with  the weatherization  program.                                                               
She explained  that the MLA  decided not  to renew a  state grant                                                               
for providing weatherization services.  Instead they arranged for                                                               
another  entity to  resume the  responsibility for  administering                                                               
the  program. Some  of the  employees moved  into other  jobs and                                                               
others  were relocated  to the  new entity.  When the  process of                                                               
eliminating  the   positions  associated  with  this   grant  was                                                               
started, they learned of the  possibility of an ongoing financial                                                               
obligation  for  the  unfunded   PERS  liability  of  potentially                                                               
reaching and exceeding  $5 million. The MLA  supports the changes                                                               
to  restore an  equitable  process that  maintains a  sustainable                                                               
salary  base currently  described in  the existing  legislation -                                                               
without  the termination  study.  They  support this  legislation                                                               
because  it maintains  a sustainable  salary base,  it creates  a                                                               
flexible workforce  that is responsive  to market  conditions and                                                               
available  funds,  it  applies   an  equitable  treatment  across                                                               
participating  employers, both  large and  small, and  overall it                                                               
simplifies administration costs and is easily enforceable.                                                                      
2:52:38 PM                                                                                                                    
DIANE WOODRUFF,  representing herself,  Wasilla, said  she wanted                                                               
to add  to the comments  the committee had already  received from                                                               
their finance director today.  She said  she is a CPA and has had                                                               
the  pleasure of  sitting in  on  Mr. Lamb's  committee with  the                                                               
Alaska Municipal  League. She absolutely  supports SB  100 seeing                                                               
what an  effect it has  on her  community. It is  inequitable for                                                               
small communities,  but it is  not without impact on  larger ones                                                               
like  Wasilla.  They find  themselves  in  the same  position  as                                                               
Cordova regarding the  hiring of a temporary police  chief in the                                                               
form a retired  Alaska State trooper. They are also  looking at a                                                               
program for which  they may receive reduced  grant funding, which                                                               
may  cause  them   to  reduce  that  program   and  eliminate  it                                                               
altogether. If  they do  eliminate it  they will  be in  the same                                                               
boat as the smaller communities.                                                                                                
2:55:01 PM                                                                                                                    
JIM  DINLEY,  Municipal Administrator,  City  of  Sitka, said  he                                                               
supported  SB 100.  The future  of applying  for grants  to offer                                                               
programs to local citizens is  in jeopardy if a termination study                                                               
is required upon layoff of personnel  paid by the grant, he said.                                                               
The  study would  negatively impact  Sitka's  decision and  their                                                               
ability  to  accept  grants  because   of  the  potential  future                                                               
liability. Sitka  currently has  two personnel-related  grants on                                                               
the books  and he doesn't  want the  risk of accepting  these two                                                               
positions under the  present scenario. It's too great  a risk for                                                               
a small city  to accept these grants with no  continuation of any                                                               
future  grant money.  They support  Mr. Lamb's  and Mr.  Semmens'                                                               
2:57:10 PM                                                                                                                    
MARV  SMITH,  Manager  and Human  Resource  Person,  Bristol  Bay                                                               
Borough, Naknek, said he supported  SB 100. Their borough is very                                                               
small and decided this year not  to add any new positions because                                                               
their whole economy is based  on the fishing industry which isn't                                                               
always  stable.   They  can't  either  expand   or  shrink  their                                                               
positions  because  of  potential  future costs  related  to  the                                                               
termination studies.                                                                                                            
2:59:51 PM                                                                                                                    
CATHY  WASSERMAN,  Executive  Director, Alaska  Municipal  League                                                               
(AML), said they  worked closely with the  Senate during crafting                                                               
of SB  125 and thought that  SB 100 would really  help right what                                                               
is  a wrong  in it.  Laws  shouldn't be  on the  books that  keep                                                               
government from  operating efficiently. Further, she  stated that                                                               
the AML was very active with  HB 106, the Coastal Zone Management                                                               
(CZM)  bill. If  that goes  away, then  "a bunch  of communities"                                                               
will have  to pay  the past  service cost  on those  coastal zone                                                               
management workers.  Many municipalities  rely on Cox  grants and                                                               
if they go away, that will cause some cost impacts also.                                                                        
SENATOR MENARD  mused that  they knew about  the small  and large                                                               
employers and employees  that were part of  the termination study                                                               
and asked if "any red flag" went off at that time.                                                                              
MS.  WASSERMAN answered  that she  relies  for most  of her  PERS                                                               
information on  Mr. Lamb  or Mr.  Semmens; and  they all  did not                                                               
understand the  ramifications or  they would have  done something                                                               
SENATOR MENARD  said it appears to  be such a "debacle"  that she                                                               
is having a hard time wrapping her mind around it.                                                                              
SENATOR MENARD asked for someone  from the administration to come                                                               
3:03:44 PM                                                                                                                    
MIKE BARNHILL, Deputy  Commissioner, Department of Administration                                                               
(DOA), said he would offer  a different perspective on the issue.                                                               
He  explained  that  the  state retirement  systems  have  a  big                                                               
unfunded  liability that  they  learned about  in  2003; at  that                                                               
point it was  just over $4 billion (PERS/TRS  combined). Today it                                                               
is approximately $10 billion. Prior to  passage of SB 125 in 2008                                                               
roughly speaking in  the PERS system the  responsibility for that                                                               
liability was  allocated 50/50  between the  State of  Alaska and                                                               
the other 156 PERS employer  participants. SB 125 reallocated the                                                               
responsibility  for  that  by  capping   the  total  amount  that                                                               
municipal employers  would have to pay  to the PERS system  at 22                                                               
He explained that  the unfunded liability is a zero  sum game. If                                                               
the municipal  employers are not paying  essentially what amounts                                                               
to a  mortgage payment,  then the  state has to  pay it;  that is                                                               
essentially what SB 125 does  - shift the responsibility from the                                                               
municipalities  to the  state general  fund.  Since its  passage,                                                               
"we're closing  in on the  general fund picking  up approximately                                                               
$1 billion  worth of  payments to  the PERS  system on  behalf of                                                               
municipal   employers."  He   said  it's   really  important   to                                                               
understand that whenever one party  does not pay into the system,                                                               
someone else has to pay it.                                                                                                     
MR. BARNHILL  said he  understands Mr. Lamb  saying they  are not                                                               
trying skirt their responsibility and  they are paying their fair                                                               
share under  SB 125, but  the bottom line  is the effect  of this                                                               
bill will  shift some costs to  state general fund. He  said they                                                               
would be submitting a fiscal note soon.                                                                                         
MR. BARNHILL  said a presentation  to Senate Finance a  few weeks                                                               
ago  identified the  history of  the termination  study issue  to                                                               
date. The state's actuary indicated  that in 2010 there were five                                                               
terminations;  each study  cost $2500.  The one-time  termination                                                               
costs contemplated  by the statute  range from $10,364  - $21,373                                                               
and in the  context where the state general fund  is going to pay                                                               
$1  billion  relatively soon  on  behalf  of the  PERS  municipal                                                               
employers to the  PERS system, these are  relatively small costs.                                                               
He  understands  the  legitimate  concerns  about  the  employers                                                               
wanting  to be  nimble and  to have  flexibility and  said he  is                                                               
willing to continue  discussing a way to arrive  at some solution                                                               
to this  that achieves  fairness to  the system  without shifting                                                               
undue costs to the state.                                                                                                       
They have  heard today about unfair  double-counting of salaries.                                                               
He has discussed  this with the Department of Law  (DOL) that has                                                               
advised that  it can be  addressed through a  regulation project.                                                               
This  is  underway  and  they  hope  to  have  it  on  the  books                                                               
relatively soon. This probably won't  solve of Mr. Lamb's and Mr.                                                               
Semmens'  concerns,  but   it  will  go  part   way  while  still                                                               
maintaining fairness to the system and the state.                                                                               
SENATOR PASKVAN  asked if he agrees  that SB 100 does  not in any                                                               
way lessen the salary floor set in 2008.                                                                                        
MR. BARNHILL answered no, it does not.                                                                                          
SENATOR PASKVAN  asked if he  agrees that the  municipalities and                                                               
school  districts potentially  are at  risk because  of accepting                                                               
grants - for example, police grants.                                                                                            
MR. BARNHILL  answered no; they  can accept whatever  grants they                                                               
want. The issue  becomes, if they terminate  those positions when                                                               
the  grant  runs out,  that  potentially  triggers a  termination                                                               
study requirement under current law.                                                                                            
SENATOR PASKVAN asked if he  believed there might be a connection                                                               
between the possibility  of the lack of employment at  the end of                                                               
a grant and that affects the  decision making at the beginning as                                                               
whether you would even accept the grant.                                                                                        
MR.  BARNHILL said  he sees  the concern.  But it's  an issue  of                                                               
trying to balance the tensions that are inherent in this issue.                                                                 
SENATOR  PASKVAN asked  on a  yes or  no basis,  if the  State of                                                               
Alaska is subject to a termination study process.                                                                               
MR. BARNHILL replied that is  an interesting question. The bottom                                                               
line is that under the cost  shifting rubric he talked about, any                                                               
additional costs  they system incurs  under SB 125 will  come out                                                               
of the state general fund.                                                                                                      
SENATOR PASKVAN said, "So, you don't have an answer."                                                                           
MR. BARNHILL  said "Can I get  one?" and asked Cathy  Lee to help                                                               
with an answer.                                                                                                                 
3:11:35 PM                                                                                                                    
CATHY  LEE, Acting  Deputy Director,  Division of  Retirement and                                                               
Benefits,  Department  of  Administration, said  the  reason  the                                                               
State of  Alaska doesn't need  a termination study is  that under                                                               
PERS  statutes,   AS  39.35.120,   the  state   must  mandatorily                                                               
participate in PERS. Participation  by all political subdivisions                                                               
or  school districts  is voluntary.  The State  of Alaska  has no                                                               
participation agreement  in all of the  termination statutes that                                                               
are  in  .600-630  that  refer to  "changes  to  a  participation                                                               
agreement."  It  refers to  the  voluntary  participation of  the                                                               
political  subdivisions or  school districts.  When the  State of                                                               
Alaska makes changes  or when it reduces employees,  while it may                                                               
not  have a  termination  study  and may  not  have  to amend  an                                                               
agreement, it  still has to  pay the liability. So,  no liability                                                               
is shifting to any of the  other employers because of the state's                                                               
personnel actions. "The state pays them itself."                                                                                
SENATOR  PASKVAN  stated  that  he knows  they  have  received  a                                                               
resolution in  support of SB 100  from Nome and asked  that other                                                               
municipalities and school districts  from around the state submit                                                               
letters as well.                                                                                                                
CHAIR EGAN thanked  everyone for their testimony and  said SB 100                                                               
would be held for further work.                                                                                                 

Document Name Date/Time Subjects