Legislature(2007 - 2008)HOUSE FINANCE 519
03/15/2007 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB95 || HB96 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 95 | TELECONFERENCED | |
| *+ | HB 96 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
March 15, 2007
1:53 P.M.
CALL TO ORDER
Co-Chair Chenault called the House Finance Committee meeting
to order at 1:53:07 PM.
MEMBERS PRESENT
Representative Mike Chenault, Co-Chair
Representative Kevin Meyer, Co-Chair
Representative Bill Stoltze, Vice-Chair
Representative Harry Crawford
Representative Richard Foster
Representative Les Gara
Representative Mike Hawker
Representative Reggie Joule
Representative Mike Kelly
Representative Mary Nelson
Representative Bill Thomas Jr.
MEMBERS ABSENT
None
ALSO PRESENT
Sharon Kelly, Staff, Representative Mike Chenault; David
Teal, Director, Legislative Finance Division
SUMMARY
HB 95 An Act making appropriations for the operating and
loan program expenses of state government, for
certain programs, and to capitalize funds; making
appropriations under art. IX, sec. 17(c),
Constitution of the State of Alaska; and providing
for an effective date.
HB 95 was HEARD & HELD in Committee for further
consideration.
HB 96 An Act making appropriations for the operating and
capital expenses of the state's integrated
comprehensive mental health program; and providing
for an effective date.
HB 96 was HEARD & HELD in Committee for further
consideration.
HOUSE BILL NO. 95
An Act making appropriations for the operating and loan
program expenses of state government, for certain
programs, and to capitalize funds; making
appropriations under art. IX, sec. 17(c), Constitution
of the State of Alaska; and providing for an effective
date.
HOUSE BILL NO. 96
An Act making appropriations for the operating and
capital expenses of the state's integrated
comprehensive mental health program; and providing for
an effective date.
1:54:42 PM
Co-Chair Meyer MOVED to ADOPT work draft 25-GH1013\O,
Bailey, 3/15/07, as the version of HB 95 before the
Committee. (Copy on File). There being NO OBJECTION, it
was adopted.
Co-Chair Meyer MOVED to ADOPT work draft 25-GH1015\E,
Bailey, 3/14/07, as the version of HB 96 before the
Committee. (Copy on File). There being NO OBJECTION, it
was adopted.
1:55:40 PM
Co-Chair Chenault explained that public testimony would be
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heard on Friday, Saturday and Monday, March 16, 17 & 19.
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The amendment deadline is Monday, March 19 at 5:00 p.m.
Amendments must be received by the Chairman's office by that
time. The Committee will begin to address amendments on
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Tuesday, March 20, with the intention to pass both bills
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out of Committee no later than Thursday, March 22.
Co-Chair Chenault addressed some large items included in the
Governor's bill and how they would be handled in the
proposed HB 95. He said Sharon Kelly would review changes
to both bills:
· The General Fund total in the committee substitute
is $3.46 billion dollars;
· The Governor's amended bill totaled $3.61 million
dollars; and
· There is a potential savings of $163 million dollars
more than the Governor's Amended budget.
1:58:28 PM
SHARON KELLY, STAFF, REPRESENTATIVE MIKE CHENAULT, provided
a presentation on the House Finance Committee substitutes
for HB 95 and HB 96. She discussed the order:
1. Review of the Subcommittee process and action
2. Review of language changes
3. Review of the Mental Health Bill
Ms. Kelly explained that the operating budget appropriation
and the mental health budget have gone through a long
process to achieve recommendations of the committee
substitute.
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1. The House Finance subcommittees for the 25 Legislature
were appointed in January.
2. During January and February, the Subcommittee reviewed
agency budgets while waiting for the Governor's
amendments.
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3. On March 1, 442 amendments were delivered from the
Governor to the Legislature. The subcommittees
reviewed those amendments, adopting, reducing or
rejecting them. Subcommittee action closed by March
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12.
4. At the request of Co-Chair Chenault, amendments
pertaining to fuel were removed by the subcommittees to
avoid increases added to the FY09 base budget. The
Administration had requested $16 million dollars in
that budget. Language has been added that allows up to
$8 million dollars more than requested for a total of
$24 million, more in line with the FY08 costs. That
appropriation is contingent upon the price of oil with
a base of $35 dollars per barrel and a cap of $58
dollars per barrel.
5. Subcommittees were requested to remove retirement
related fund source changes and action, which brought
budget figures back to a consistent basis.
6. Subcommittees reviewed language pertaining to each
department and their recommendations.
7. All subcommittee recommendations appear in the
committee substitute (CS); the only addition is the
$1.3 million General Fund dollars, which replaces Oil
and Hazardous Funds in the Department of Military &
Veterans Affairs and Department of Transportation &
Public Facilities budget.
8. Subcommittee final closeouts and narratives are posted
for the public on the Legislative Finance website.
2:00:47 PM
LANGUAGE:
Ms. Kelly indicated the language differences from the
Governor's bill including the subcommittee changes and those
proposed by Co-Chair Chenault.
· Section 4 added legislative intent on Page 56.
· Section 5 added legislative intent.
· Section 6, the Alaska Aerospace Development added in
federal receipts.
· Section 7, for the Alaska Housing Finance
Corporation (AHFC) dividends will go into the Alaska
Capital Income Account in the amount of $38.8
million dollars.
· Section 8, the Alaska Industrial Development and
Export Authority (AIDEA) dividends will go into the
Alaska Capital Income Fund instead of the debt
retirement in the amount of $10 million dollars.
· Section 9 - no changes
· Section 10, the Alaska Student Loan Corporation
(ASLC) dividends will go into the Capital Income
Fund in the amount of $1.2 million dollars
· Section 11, the Department of Administration items B
& C were added together to total $2.51 million
dollars.
· Section 12, previously labeled Section 11 - to the
Department of Corrections subcommittee removed
health care costs, an open ended allocation for the
inmate health care; the Subcommittee added $1.9
million dollars. Inmate health costs will be
addressed in another appropriation bill.
· Section 13, in the Department of Education & Early
Development component, education was previously
funded through HB 97. The amount in HB 95 is $291,
$381 & $200, making a $30 million dollar reduction,
coming from the Governor's proposed amendments with
a $75 million dollar reduction from Teacher
Retirement System (TRS).
· Section 14 covers retirement funding direct
appropriations and deposits to the Department of
Administration to fund TRS, reducing the rate to
12.5%; Section C includes a direct deposit to the
Department of Education & Early Development and
reduces the rate to 22%.
· Section 15, the Department of Health and Social
Services subcommittee added the Federal Medicaid
Assistance Program (FMAP) contingency language for
$37.1 million dollars.
· Section 16, to the Department of Labor & Workforce
Development, there were no changes.
· Section 17, to the Department of Military & Veterans
Affairs, there were no changes.
· Section 18, to the Department of Natural Resources,
there were no changes.
· Section 19, to the Department of Public Safety,
there were no changes.
· Section 20, the Department of Revenue, Section C was
modified, adding a cap of $25 million dollars paid
to the Alaska Retirement Management (ARM) Board and
intends payment on additional claims.
· Section 21, to the Office of the Governor, including
the $24 million dollar fuel contingency; the trigger
dates were changed.
· Section 22, to the University of Alaska, there were
no changes.
· Section 23, to the Federal and other program
receipts, there were no changes.
· Section 24, Fund Transfer changes: Item 4(a) was
changed to $102 million general fund dollars; 6(a)
removes the AHFC dividend; 7(a) © removed the $10
million from AIDEA; item C relates to Power Cost
Equalization (PCE), removed by the Subcommittee for
$12 million; item D was modified to appropriate $25
million from the PCE Endowment Fund to the Power
Cost Authority (PCA) Capitalization Fund; item N
removed $3 million to the Disaster Relief Fund; item
S produced $20 million to the ASLC receipts to pay
down student scholarships and was removed; item V,
relating to Enterprise Technology Services (ETS)
capitalization of $5.3 million was removed
· Section 25, to Bond Claims, there were no changes.
· Section 26, to Retained Fees and Bankcard Service,
there were no changes.
· Retirement for municipalities was removed
(previously Section 22)
· Section 27, to Salary & Benefit Adjustments, there
were no changes.
· Section 28, the Shared Taxes and Fees includes
commercial passenger vessel excise tax and regional
cruise ship impact funds.
· Section 29, State debt & other obligations, Section
G was changed to coincide with the Governor's
amendment to add miscellaneous fees of $1.8 million
dollars; item M was moved and a $3.4 million dollar
appropriation for the AHFC parking garage was added.
· Section 30, removed items E & F from the Capital
Budget Request (CBR).
2:10:00 PM
MENTAL HEALTH
Ms. Kelly explained that one change was made to the Mental
Health Bill, HB 96. It is customary for the House to remove
one capital item and the Senate to remove the rest so all
items are subject to the call of the Conference Committee.
The item removed was $650 thousand dollars in the Mental
Health Trust receipts from the Department of Natural
Resources Mental Health Land Trust Development located in
Section 3.
2:10:35 PM
RETIREMENT:
Ms. Kelly spoke to the unfunded liability and the various
approaches proposed to address the concern. Some reasons
for the liability are a market crash, increases to health
costs, increasing number of retirees and incorrect actuarial
information.
The proposed remedies are:
· SB 141 changed the program from Defined Benefit to
Defined Contribution.
· The Alaska Retirement Management (ARM) Board raised
rates in FY07, the Teacher Retirement System (TRS @
26 and the Public Employees Retirement System
(PERS)) capped at 5% increase.
· The ARM Board again raised rates in FY08 - TRS 54%;
PERS = various (uncapped low 12%, high 184%). The
State rate was 22.75% in FY07 and 44% in FY08.
· The ARM Board calculated amounts needed to payoff
the unfunded liability in 25 years with equal
payments from the established rate.
· The ARM Board included a factor in calculating the
rates to cover a decreasing wage base of the defined
benefit members TRS 11.77%/PERS 7.25%.
Ms. Kelly discussed problems with the current retirement
system:
· The school districts and the University are not
competitive when seeking federal and other grants
due to the escalating retirement costs.
· The Base Student Allocation (BSA) has been raised in
the last two years to pay the retirement increases
within the formula causing the military academy to
be over-funded because they have no employees in the
TRS system. The effect has become magnified because
they receive seven times the BSA.
· An optional retirement program at the University
tied participant retirement deposits directly to the
ARM Board rate. The participants could receive an
unanticipated windfall increase directly to their
personal accounts as the ARM Board continues to
increase rates.
· That rate is so high, it directly impacts services
in the schools and the municipalities by taking
money away from the classroom and municipal services
in order to payoff the liability.
· Municipality's inability to pay high rates.
· PERS is not a cost shared plan and each entity has a
different rate.
· PERS needs to go to a cost share plan that includes
the entire wage base of the Defined Benefit (DB) and
Define Contribution (DC) plan so that only one rate
is paid. Such action could insure no hiring
discrimination because of the retirement status of
the employee; the action could also eliminate the
administrative burden of tracking retirement costs
by employees.
Ms. Kelly addressed the FY08 fixes to date. The Governor
proposed to fund the FY08 TRS and PERS retirement increases
outside the education formula. The Governor's TRS
amendments returned that rate to 26%. A resolution by the
ARM Board indicated that they will reduce rates to FY06
levels if the State directly pays into the Unfunded
Liability Account the difference they would have collected
at the established FY08 rates.
Since the beginning of Session, the House Finance Committee
(HFC) has been exploring with the Legislative Finance
Division (LFD), approaches that could be put in place to fix
the issue while at the same time, addressing the unfunded
liability. The HFC "fix" requires three pieces.
o Fixing the appropriation bill to reflect the
appropriate amount of money necessary to fund
retirement issues this year.
o Amending the statute to makes the PERS a cost
share system and set a base rate in statute for
the rate that will be paid by participants.
o Make PERS/TRS a blended system, a system that
includes both DB and DC employees at one rate.
The committee substitute addresses only one piece, the
appropriation in Section 14, TRS @ $269 million dollars /
PERS @ $180 million dollars.
2:17:51 PM
Ms. Kelly discussed the fixes in the work draft including a
TRS rate of 12.56%, funding the remaining portion outside
the formula. The draft calculates the PERS rate at 22% for
municipalities with the State picking up the remaining
difference. The rate used for the PERS system calculations
is 22%. That rate was selected because:
· It is close to the State's rate of 22.75%; and
· It balances the municipality's needs with the
State's ability to pay, paying $65 million dollars
of the municipality's request of $78 million dollars
this year. The fix would be permanent and would not
need to be considered each year.
Ms. Kelly noted the second piece of the bill, discussed in
the Senate Finance Committee (SFC), would be introduced
soon. That legislation changes the PERS to a cost share
system, not including the full wage base with one rate for
all participants. Such amendments will need to be added.
Ms. Kelly identified who wins with the proposed system:
· The State, as the unfunded liability is being paid
down and deposits for the TRS would be made in July
instead of over a 12 month period. Everyone would
pay the same rate. The military academy would be
funded more currently. The calculation for the
employee retirement would be a fixed rate versus
calculating by individual employees. The unfunded
liability would be paid off in 25 years.
· The school districts, as the BSA was calculated
according to a district's need, would not include
paying off an unfunded liability.
· The municipalities, as they would acquire a rate
that they could depend upon and afford; there would
be no hiring discrimination.
Ms. Kelly recapped important parts of her presentation:
· Pass the appropriation draft with retirement fixes
listed;
· Pass the Governor's anticipated bill, implementing a
cost share system in the PERS and amending the bill
to include the PERS/TRS entire salary base; and the
· ARM Board dropping rates prior to June 30, 2007.
2:18:37 PM
Representative Nelson asked what DCDB employees were. Ms.
Kelly explained that DC is Defined Contribution and DB as a
Defined Benefit.
2:19:15 PM
Co-Chair Chenault expressed his gratitude to the work
produced by the subcommittee chairmen and the subcommittee
process. He highlighted the schedule for the upcoming week.
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Amendments will be addressed on March 21-23.
HB 95 and HB 96 were HELD in Committee for further
consideration.
2:22:44 PM
ADJOURNMENT
The meeting was adjourned at 2:22 P.M.
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