Legislature(2013 - 2014)BUTROVICH 205
04/02/2013 09:00 AM Senate STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HJR11 | |
| SB48 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HJR 11 | TELECONFERENCED | |
| = | SB 48 | ||
SB 48-PERS CONTRIBUTIONS BY MUNICIPALITIES
9:12:10 AM
CHAIR DYSON announced that the final order of business would be
SB 48.
DAVID SCOTT, Staff, Senator Donny Olson, sponsor of SB 48,
introduced the bill. He stated that version A was before the
committee.
CHAIR DYSON noted that the committee has heard the bill
previously. He recalled that some communities are in financial
trouble and have no way to fulfill their commitment to pay their
PERS/TRS retirement costs. In 2008, SB 125 was intended to keep
those communities from "gaming the system". The unintended
result of that legislation is that communities decreasing in
population are no longer able to pay their share and are
trapped, so Senator Olson came up with a solution - SB 48.
MR. SCOTT agreed with Chair Dyson. He added that SB 48 is a
solution to a problem, which if left unsolved, will result in
the state's seeing no money from these communities. He said the
bill is still in process and the other body has a similar bill
in the works. The sponsor wishes to help communities get out of
debt.
9:15:09 AM
CHAIR DYSON referred to a legal summary in members' packets.
SENATOR COGHILL requested an explanation of the House version of
the bill.
MR. SCOTT said the other body is going to provide for
communities that have lost 25 percent of their population by
using the floor created by HB 125 in 2008 and forgiving a
certain amount of debt. He noted there is ongoing communication
between the other body and sponsor, the state, and Senator
Olson's office.
CHAIR DYSON said he does not like the idea of continuing to deal
with this issue on an ad hoc basis. A better way might be to
deal with it by appropriation for a couple sessions. He said he
was inclined to pass the bill on to the Senate Finance
Committee. Nothing has been done since 2008, so there has to be
some pressure for a solution.
SENATOR GIESSEL requested an opinion from Mr. Barnhill.
9:18:35 AM
MIKE BARNHILL, Deputy Commissioner, Office of the Commissioner,
Department of Administration, provided information related to SB
48. He related that his office has been involved in a discussion
since last fall with the Alaska Municipal League and both
sponsors. He agreed that there is a problem and a variety of
solutions. He said SB 48 is a workable solution, as is
"advancing the floor to 2012." Another solution is to have an
appropriation through the Municipal Grants Program every year.
He said the administration leans toward the latter ad hoc
solution and not toward changing the statute, which would be
permanent and problematic if the population returns to the
community. There is also a fairness issue if the community has
the ability to pay some time in the future.
9:21:00 AM
CHAIR DYSON asked how much an appropriation would be if it were
made in this budget.
MR. BARNHILL replied that about 23 municipalities fall into the
delinquent category with the total amount of delinquency just
over $6 million and, of that, $4 million is penalties and
interest. The principal amount owed is between $1 million to $2
million.
CHAIR DYSON asked how to determine which communities deserve to
get bailed out by the state.
MR. BARNHILL suggested paying off the largest bills first. He
suggested it would be better to earmark it through the Municipal
Grants Program.
CHAIR DYSON asked if the administration could determine which
communities are absolutely without options.
MR. BARNHILL suggested the standards set forth in SB 48 could be
used. He used Galena as an example of a community that has
communicated its needs.
9:23:48 AM
CHAIR DYSON commented that the Institute of Social and Economic
Research (ISER) did a study on what makes a viable community, as
did the Denali Commission.
GREG MOYER, Galena City Manager, testified on SB 48. He
emphasized that Galena would face the same inability to pay
every year because its base salary is half of what was set by
law. He suggested that there be a permanent fix. He said his
goal is to build up the city and increase the population.
9:26:22 AM
CHAIR DYSON asked what harm delaying this legislation would do.
MR. BARNHILL explained that the amount owed continues to grow
and has persisted for several years. The interest rate of 12
percent is high. He said there is currently not much harm to the
retirement system. He voiced concern about the number of cities
in noncompliance. He shared the option of a statutory intercept,
an abrupt and disruptive option, which the department is
reluctant to do but may be necessary if non-compliance becomes
more widespread.
9:28:19 AM
SENATOR WIELECHOWSKI asked what the administration recommends.
MR. BARNHILL said the preference is to deal with it through
appropriation. The administration has no position on the bill.
SENATOR WIELECHOWSKI asked if the Governor is willing to put
money into future budgets for this.
MR. BARNHILL said the Municipal Grant Program is always in the
capital budget. He said he could not speak for the Governor.
9:29:40 AM
CHAIR DYSON addressed Mr. Moyer. He said he suspects that as the
penalties and interest grow, Galena's credit will be affected
and their credit rating is weakened.
MR. MOYER agreed it does have a detrimental effect on Galena. He
believed strongly in a legislative fix, due to the yearly
liability. He stressed that Galena needs help now.
MR. SCOTT said a single appropriation would still mean that
Galena's bill would continue.
9:32:37 AM
CHAIR DYSON concluded that the state is going to end up assuming
the communities' responsibilities due to the arbitrary floor. He
suggested the penalties and interest should be forgiven. He
asked if the sponsor thought of retroactively eliminating
penalties via statute.
MR. SCOTT said it was discussed, but not included in the bill.
9:34:03 AM
CHAIR DYSON suggested not penalizing the communities, yet having
an objective evaluation of who should be relieved of those
penalties.
SENATOR COGHILL suggested passing the bill on to Senate Finance.
He said the benefit of a statutory fix is that the legislature
has to deal with it. He noted with an annual appropriation,
municipal grant criteria must be considered. He questioned
whether moving the date is the best fix, because later it could
be amended and cause problems. He liked the idea of a budget
amendment which has to be debated each year. He suggested it
should be done at an appropriation level now. The bill sets up a
structure that might not work in the future.
CHAIR DYSON said there could be unintended consequences again.
SENATOR COGHILL thought HB 125 might have to be re-written due
to the economy in Alaska.
CHAIR DYSON asked Mr. Barnhill about the cost of making an
appropriation.
MR. BARNHILL said between $1 million and $2 million of
principle.
SENATOR WIELECHOWSKI pointed out there is still over $4 million
owed accumulating at 12 percent interest.
MR. BARNHILL agreed. He suggested if an appropriation is going
to be made the entire amount should be paid.
SENATOR WIELECHOWSKI asked about lowering the 12 percent
interest rate.
MR. BARNHILL said interest rates are to compensate the state for
the time value of money, which is currently zero. Also, interest
rate can be punitive designed to illicit compliance. The statute
has a fixed rate of 8 percent, plus an additional 50 percent
rate. He suggested the committee keep in mind the two components
of interest rates as they proceed.
9:40:58 AM
CHAIR DYSON asked if there is $3 million to $4 million in
interest and penalties.
MR. BARNHILL said yes.
SENATOR COGHILL pointed out that the state would be paying
itself the interest under an appropriation. If the legislature
passes the bill, it requires part of the debt to be paid back at
a lower interest rate and that would draw the communities into
the payment method. He disliked that an appropriation would be
the state paying itself the interest.
SENATOR WIELECHOWSKI asked where the interest goes.
MR. BARNHILL said that "the state is paying itself" is a
misnomer because the money goes into a trust fund for the
benefit of the members of the retirement system.
CHAIR DYSON said that is an important distinction.
MR. BARNHILL emphasized that the interest going into the trust
fund does not make a meaningful difference toward repaying the
unfunded liability.
CHAIR DYSON inquired whether a municipality can file for
bankruptcy in Alaska.
9:43:43 AM
MR. BARNHILL did not know.
CHAIR DYSON commented on bankruptcy. He said it would be an
interesting discussion.
CHAIR DYSON suggested holding the bill until Thursday and
compiling a letter of intent to the administration regarding a
long-term solution.
SENATOR WIELECHOWSKI agreed. He said he thinks the
administration knows what's best. He did not like the Band-Aid
approach.
CHAIR DYSON asked if the Department of Law has someone who could
work on the issue.
9:46:03 AM
MR. BARNHILL said yes.
CHAIR DYSON requested information on the status of bankruptcy in
Alaska.
MR. SCOTT suggested contacting Scott Ruby from the Department of
Commerce, Community and Economic Development.
CHAIR DYSON he suggested a deadline of noon tomorrow.
SENATOR COGHILL asked for a "kick out provision" regarding the
population threshold.
MR. SCOTT said he thought the sponsor would agree with that.
[SB 48 was held in committee.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HJR 11 Sponsor Statement.pdf |
SSTA 4/2/2013 9:00:00 AM |
HJR 11 |
| HJR 11B.pdf |
SSTA 4/2/2013 9:00:00 AM |
HJR 11 |
| SB 48 - Sponsor Statement.pdf |
SSTA 4/2/2013 9:00:00 AM |
SB 48 |
| SB 48 Version A.pdf |
SSTA 4/2/2013 9:00:00 AM |
SB 48 |
| SB 48 Fiscal Note DOA-DRB-3-08-13.pdf |
SSTA 4/2/2013 9:00:00 AM |
SB 48 |
| SB 48 STA Questions To & Answers From DOA.pdf |
SSTA 4/2/2013 9:00:00 AM |
SB 48 |
| SB 48 E-mail on Municipal Bankruptcies in Alaska.pdf |
SSTA 4/2/2013 9:00:00 AM |
SB 48 |
| SB 48 Copy of Copy of PERS Employer census 2000-2010 (3).pdf |
SSTA 4/2/2013 9:00:00 AM |
SB 48 |
| SB 48 City of Pelican Statement.pdf |
SSTA 4/2/2013 9:00:00 AM |
SB 48 |
| SB 48 - Legislative Research Municipal Bankruptcies in Alaska.pdf |
SSTA 4/2/2013 9:00:00 AM |
SB 48 |
| SB 48 - Employers impacted by salary floor.pdf |
SSTA 4/2/2013 9:00:00 AM |
SB 48 |
| SB 48 - effected employers.pdf |
SSTA 4/2/2013 9:00:00 AM |
SB 48 |