Legislature(2021 - 2022)ADAMS 519
05/13/2021 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB90 | |
| SB55 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 90 | TELECONFERENCED | |
| + | HB 75 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | SB 55 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
May 13, 2021
3:15 p.m.
3:15:13 PM
CALL TO ORDER
Co-Chair Merrick called the House Finance Committee meeting
to order at 3:15 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Kelly Merrick, Co-Chair
Representative Dan Ortiz, Vice-Chair
Representative Ben Carpenter
Representative Bryce Edgmon
Representative DeLena Johnson
Representative Andy Josephson
Representative Bart LeBon
Representative Sara Rasmussen
Representative Steve Thompson
Representative Adam Wool
MEMBERS ABSENT
None
ALSO PRESENT
Representative Adam Wool, Sponsor; Ashley Carrick, Staff,
Representative Wool; Neil Steininger, Director, Office of
Management and Budget, Office of the Governor.
PRESENT VIA TELECONFERENCE
Rose Feliciano, Internet Association, Seattle, WA; Benjamin
Palmer, Enterprise Holdings, California; Mark Ha, Self,
Anchorage; Sean Vinck, Senior Counsel, Turo Inc., San
Francisco, California; Carl Szabo, NET Choice, Washington,
DC; Nicole Reynolds, Deputy Director, Tax Division,
Department of Revenue; Jeffrey Schmitz, Director, DMV,
Anchorage.
SUMMARY
HB 90 VEHICLE RENTALS & VEHICLE RENTAL NETWORKS
HB 90 was HEARD and HELD in committee for further
consideration.
SB 55 EMPLOYER CONTRIBUTIONS TO PERS
SB 55 was REPORTED out of committee with a "do
pass" recommendation and with
Co-Chair Merrick reviewed the agenda for the meeting.
HOUSE BILL NO. 90
"An Act relating to rental vehicles; relating to
vehicle rental networks; relating to liability for
vehicle rental taxes; and providing for an effective
date."
3:15:58 PM
REPRESENTATIVE ADAM WOOL, SPONSOR, introduced the bill. He
reported that the bill endeavored to apply the same
statewide vehicle rental tax that was currently in place
for rental cars and apply it to peer to peer vehicle rental
networks. Turo was only one of many peer to peer rental
companies. He explained how a peer to peer rental worked.
When a private individual wished to rent their car to
another individual the person used a technology platform
that listed your car on the internet via an app. The renter
paid through the app and the vehicle owner received a share
of the rental charge from the app company. The legislation
added a tax to the rental charge. The person renting the
car paid the tax. He described it as a level playing field
bill that treated all rental companies the same. The
Municipality of Anchorage recently passed a law adding
vehicle rental network tax to its existing municipal
vehicle rental tax of 8 percent. He added that the state
rental tax was 10 percent. The bill would apply the same
tax for the state. He indicated that the tax structure was
like Airbnb. The Airbnb owner had to pay a bed tax to the
municipality and the person renting the room had to pay the
tax. He noted that there was no statewide bed tax. Someone
ride sharing through Uber had to pay municipal sales tax
that was passed on to the rider, the same as via taxicab.
He reported that 29 states taxed vehicle rental networks.
He emphasized that Turo or other networks did not pay the
tax, the person who rented the vehicle paid the tax. He
spoke of friends he knew in Fairbanks who purchased
multiple cars in order to rent them privately through Turo
or other entities. The individuals were operating a small
car rental outfit and making significant profits. He
relayed that currently there was a rental car shortage and
over half of the 14 Turo listings he observed in Anchorage
were from owners listing multiple cars. He considered those
scenarios businesses and believed that taxes should be
paid. He emphasized that HB 90 created equity; since the
state had a vehicle rental tax the state should have a
statewide peer to peer rental tax.
3:21:59 PM
Representative Josephson noted Representative Wool stated
there were 14 cars listed on Turo in Anchorage. He wondered
how the state vehicle rental tax would increase by 10 to 30
percent with such a small selection of vehicles.
Representative Wool indicated his statistics were based on
a one day snapshot; a more thorough analysis was necessary.
He elaborated that there had been a previous testifier who
thought there were hundreds of cars listed on Turo in
Alaska. Representative Josephson cited Anchorage's tax of 8
percent for vehicle rentals and the bill added 10 percent
that made the total tax 18 percent. Representative Wool
responded that currently the state vehicle rental tax was
10 percent and Anchorages was 8 percent. He calculated that
currently a person who rented from a company such as Avis
in the city of Anchorage was paying 18 percent in tax.
However, the same individual currently renting from Turo in
Anchorage only paid the 8 percent municipal tax. He noted
that Wasilla had no vehicle rental tax, therefore, no taxes
were paid.
3:24:26 PM
Representative Josephson stated that he was in the happy
position of being totally indifferent to the industry.
However, he wondered what effect the bill would have on the
network business model. Representative Wool hypothesized
that if a vehicle was rented for $100 HB 90 added $10, the
bill to the customer was $110. He reiterated that the bill
places private vehicle rentals on a more level playing
fields as traditional vehicle rentals. Ultimately, it made
the rental rate equal. Representative Josephson indicated
he used Airbnb to save money. He thought the bill could
discourage someone from renting from vehicle rental
networks. Representative Wool argued that the Turo cars
were likely rented at market rates, and he doubted that
Turo cars were necessarily less expensive. He added that
the model did not employ people and there were not the
added expenses such as the traditional brick and mortar
business. He guessed that the vehicle network user could
absorb the 10 percent tax and lower the rate slightly. He
supposed it was similar to Airbnb where some listings were
cheaper than hotels and some were more expensive. He had
not done a full analysis of the industry.
Co-Chair Merrick noted Representative LeBon had joined the
meeting.
3:27:33 PM
Representative Rasmussen shared information she received
from a vehicle rental network company. She relayed that
individual residents of Alaska choose to make their car
available through a platform and these hosts pay all
associated costs for the maintenance of their vehicle, the
platform does provide liability when the vehicle is being
shared. She thought that the big difference was that
individual Alaskans were not AVIS or Hertz. She had heard
from a constituent who used the platform that $10 made all
the difference in terms of buying diapers and baby food.
She believed that taking 10 percent made a difference.
She determined that the business model was different from
that of rental car companies. Representative Wool
reiterated that the customer paid the tax, not the mom
purchasing diapers. He stressed that many people renting
vehicles through the Turo app had multiple vehicles and
were not mom and pop scenarios that used it to pay housing
costs. In fact, in order to be on Turo, a person had to
have a nice car, in good condition and many people
purchased cars solely to lease through Turo. The tax would
be the onus of the renter rather than the owner of the
vehicle. He reminded Representative Rasmussen that
Anchorage had already implemented an 8 percent tax on
network rentals. Representative Rasmussen understood the
renter ultimately paid the tax. She deemed that for the
private folks to compete, it may mean that they had to
lower the price due to the additional tax. She argued that
it would be unfortunate if the legislature did not consider
the unintended consequences.
Representative Wool voiced that several questions would be
answered by the presentation. He suggested that a business
model of a privately owned vehicle was less onerous than
the business model of an established company with many
expenses.
3:31:55 PM
Representative Thompson had some of the same concerns
presented by Representative Rasmussen. He had received
several calls concluding that the bill was a poor idea
during the period of recovery [from the COVID 19 pandemic].
He thought the bill would presently hurt the economy and
suggested it would be better to consider the bill next
year.
Representative Carpenter understood the fairness argument.
He thought the traditional vehicle rental car tax could be
adjusted to the same rate as the network tax.
3:33:16 PM
ASHLEY CARRICK, STAFF, REPRESENTATIVE WOOL, introduced the
PowerPoint presentation: "HB 90: Private Vehicle Rental
Networks." She suggested that some of the slides would
clarify some of the points brought up in the discussion.
She began with slide 2: "Definitions:"
Vehicle Rental Business:
Traditional car rental OR Peer-to-Peer Rental
Examples: Alamo, Enterprise, Turo, Getaround,
etc.
Vehicle Rental Business:
Digital network including the applications,
software, or system offered by a vehicle rental
business Examples: The app used to rent through
Turo
3:34:14 PM
Ms. Carrick reviewed slide 3 titled States Where DOR Have
Determined Vehicle Rental Networks to Be Taxable. She
delineated that the map portrayed the 16 States including
Alaska that had a Department of Revenue which had
determined Vehicle Rental Network businesses were taxable.
The Walker Administration had a position statement
regarding the topic, but the Dunleavy Administration did
not. The sponsor requested a legal opinion on whether the
states current vehicle rental tax could be applied to
rental networks. She relayed that the opinion stated that
the current statute was broad enough to apply to rental
networks. However, the sponsor felt that the bill provided
a more definitive statute. She reported that an ordinance
in Anchorage had applied a tax on peer to peer car rentals
that was 8 percent on both vehicle rentals
and network rentals and added a new definition for a
hosting platform.
3:35:51 PM
Ms. Carrick continued to slide 4 titled States Where
Vehicle Rental Networks are Collecting Tax. The map
depicted the 29 states currently applying rental taxes to
vehicle rental networks. She reiterated that Alaskas
current tax rates were 10 percent for vehicle rentals and 3
percent for Recreational Vehicles (RV). Historically,
vehicle rental tax revenue was approximately $10 million,
which could increase 10 percent to 30 percent with the
addition of vehicle rental networks. She explained that the
10 to 30 percent estimate was a rough estimate based on the
number of network platform vehicle rentals available. She
revealed that in 2018, the Department of Revenue (DOR)
under the Walker Administration, filed a lawsuit against
Turo because it refused to provide any information
regarding the amount of business it conducted in the state
or the vehicle owners who used to platform to collect the
tax. Therefore, the tax estimate was rough. The state did
not currently know how many people were renting through
platforms and how much income they made in the state.
3:37:48 PM
Co-Chair Merrick noted Representative Edgmon had joined the
meeting.
Ms. Carrick spoke to Slide 5 titled Different Standards
for The Same Model. She pointed out that traditional car
rental and peer to peer networks had the same business
model with different tax burdens and were not contributing
to Alaskas economy similarly. She noted that networks
rented vehicles and provided insurance protection. They
sold ancillary products such as GPS and child seats and
both had app based technology. She reiterated that the tax
applied to the person renting the vehicle. The business
model aligned with other app-based industries such as
Airbnb and Uber. All app-based companies employed a similar
argument when voicing opposition to being taxed. However,
peer to peer (P2P) networks were clearly operating in
Alaska, despite having headquarters in other states and
were profiting off Alaskans. Additionally, she obtained a
legal opinion stating that the networks were liable to pay
a vehicle rental tax.
3:40:00 PM
Representative LeBon offered a hypothetical situation where
someone leased a vehicle to a bed and breakfast owner for a
daily flat-rate. He asked if any tax applied to the
scenario.
3:41:00 PM
Representative Wool stated that he was not a lawyer. He
noted that state law indicated that if a person rented a
vehicle for any reason, they were liable for the tax. He
suggested that if a person was making money from someone
else using a person's car it would be considered a rental
business. He elucidated that the state had a similar
problem with Uber; technically the users were liable for a
tax, but it was difficult to find the users. The state
requested the information from Uber who declined, so the
only way to collect the tax was to tax Uber. He discussed
the fairness issue. He reported that Airbnb was not exempt
and paid a bed tax. Airbnbs were still less expensive than
hotels and the Airbnb rental owners were able to pay the
tax and remain solvent. He shared that he had many friends
that rented out their home or cabin in Fairbanks, paid the
bed tax and were still profitable. He added that many
communities were taxing online sales and it saved several
communities during the pandemic. Online shopping increased
with people staying at home and the revenue gained with the
online sales tax helped many local economies. He compared
the vehicle network tax to the examples he provided and
asserted that the tax was not punishing anyone. He argued
that whoever was renting their car and applied the state
sales tax could remain in business.
Representative LeBon supposed that if the Bed and Breakfast
included the vehicle use built into the business model,
then tax would be collected indirectly through the bed tax
on the vehicle.
3:44:17 PM
Representative Thompson was aware that the states current
car rental tax was adopted in the late 1980s and contained
a provision that the revenues would be used to promote
tourism. He wondered if the current legislation would do
the same. Representative Wool responded that such a
provision would be decided by the committee.
3:45:23 PM
Representative Josephson asked if DOR took a position on
whether the vehicle rental networks should be taxed. Ms.
Carrick answered that the current administration did not
hold a position regarding taxing vehicle rental networks.
She reiterated that the prior administration held the
position that the networks should be taxed. She noted that
the legislative legal opinion did indicate that companies
like Turo should hold an Alaskan business license.
Representative Josephson deduced that under the bill the
networks would have to essentially play ball and could no
longer declare not knowing who their subscribers were. Ms.
Carrick offered that HB 90 added clarity or teeth to
statute that already existed that vehicle rental networks
were obligated to pay the tax.
3:47:10 PM
Co-Chair Merrick OPENED public testimony.
ROSE FELICIANO, INTERNET ASSOCIATION, SEATTLE, WA (via
teleconference), opposed HB 90. She shared that she
represented over 40 of worlds leading internet based
companies. She voiced that peer to peer car sharing was a
different business model from rental car companies. The
platform did not own the vehicles and the cars were owned
by individuals who used the platform. There were
individuals who were able to purchase two cars to generate
income. She was unsure why Representative Wool would want
to impose a tax on a service that bolstered tourism. She
hoped peer to peer car rentals would help fill the gap left
by the current car rental shortage. She opined that the
bill would make it impossible for hosts to offer cars and
would hurt tourism. She questioned some of the
information in the sponsors presentation. She relayed that
if a state had a sales tax, the peer to peer platform
charged a sales tax on every transaction. She felt
disappointed that the peer to peer companies had not had
the chance to provide input on the legislation.
Co-Chair Merrick deduced that if all the rental cars were
taken, Turo would be a good second choice and due to the
lack of rental cars the business would go to vehicle
network rentals. Ms. Feliciano agreed with the statement.
She added that traditional vehicle rentals had restrictions
on use and peer to peer rentals did not.
3:51:28 PM
BENJAMIN PALMER, ENTERPRISE HOLDINGS, CALIFORNIA (via
teleconference), spoke in support of the bill. He shared
that the company was a privately held family owned company
with the Enterprise/Alamo national brands and operated in
Alaska since 1989. He voiced that HB 90 clarified that
Alaskas rental car tax applied to rentals regardless of
how they were rented. The tax was paid by the renter and
was something all customers in Alaska should expect when
renting a car. The legislation created a level playing
field and ensured that the states general fund would not
loose income from network transactions.
3:52:37 PM
MARK HA, SELF, ANCHORAGE (via teleconference), testified
against the bill. He was in the Airbnb business but was
speaking on behalf of his friend who rented their cars
privately through Turo to earn extra income. He suggested
that rental companies had other opportunities to lower the
costs of doing business including tax breaks. He viewed the
bill as an opportunity for industry to take a few dollars
from a guy's back pocket.
3:54:37 PM
SEAN VINCK, SENIOR COUNSEL, TURO INC., SAN FRANCISCO,
CALIFORNIA (via teleconference), spoke in opposition to HB
90. He listed 9 states that enacted statutes governing peer
to peer car sharing but did not tax them. He relayed that
there were states that applied a separate and lower tax
rate for peer to peer car sharing versus traditional car
rentals. He emphasized they were 2 separate industries with
dramatically different business models. He also pointed
out that the need for the legislation proved that the
current vehicle rental tax statute did not apply to peer to
peer rentals. He argued that rather than clarify statute,
HB 90 promoted ambiguity and confusion because it failed to
address a basic question regarding whether peer to peer
rentals were the equivalent of a multinational rental car
company. He believed that the bill did nothing to provide
clarification to his point.
3:57:13 PM
Representative Josephson asked Mr. Vinck about the taxes
that did apply to peer to peer rentals in other states. Mr.
Vinck maintained that the mentioned states enacted laws
that exempted vehicle networks from rental taxes. However,
many of the states applied sales and use taxes, but the tax
under discussion was an industry specific tax. He
characterized it as a rental car excise tax. He stressed
that his point was the states listed found it was not
appropriate public policy to apply the exact same
transactional tax as traditional car rentals.
3:58:09 PM
Representative Josephson commented that he cited the slide
that stated that 29 states currently had a tax on vehicle
rental networks.
3:58:29 PM
Representative Wool asked whether Turo had an active
corporate business license in Alaska assuming Turo had
clients in the state. Mr. Vinck answered in the negative.
He added that Turo did not have clients but did have both
guest and hosts that utilized the platform.
Representative Wool acknowledged the difference in
semantics and offered that what Turo called sharing a car
was considered renting a car. He pointed out that if a
person came to Alaska and found a car through the Turo App,
paid money to rent the car, the car owner received some
funds and Turo corporation received funds from the
transaction that happened in Alaska. He reasoned that Turo
should hold a business license in the state where it was
making money. He asked if Mr. Vinck thought Turo should not
have a business license in the state where it was earning
revenue. Mr. Vinck replied that the issue he was addressing
was vehicle rental tax and did not answer the question.
4:00:21 PM
CARL SZABO, NET CHOICE, WASHINGTON, DC (via
teleconference), spoke in opposition of HB 90. He argued
that people were hurting because of Covid-19 and believed
that it was not the right time for any consideration of a
new tax on the people of Anchorage. He stated that the
state had a budget surplus. He offered that the slide
stating 29 states had a tax on car sharing platforms like
Turo was not entirely accurate. He related that most of
the states were applying an excise tax and not a rental
tax. He stated that no state applied exactly the same tax
to peer to peer car rentals as vehicle rentals. He voiced
that rental car companies were not the same as car sharing.
He indicated that Enterprise and Hertz owned hundreds of
cars in many locations in the state and vehicle networks
did not own any cars. He reiterated that the state earned
$10 million annually from rental cars. He stated that
rental car companies enjoyed a $1.9 million windfall
payback on line 26 [page 3] of the bill, "vehicle
licensing cost recovery fee". He indicated the fee applied
to car rental companies but not to citizens when they share
their cars. He wondered whether the tax would be applied
retroactively if the bill was merely a clarification of
statute. He opined that it was a new tax and believed that
at present it was wildly inappropriate.
Co-Chair Merrick clarified that a budget surplus was
calculated before a Permanent Fund Dividend (PFD) was paid.
Therefore, if the state paid a dividend in the current year
the state would incur a deficit.
Representative Josephson was troubled when he heard Mr.
Szabo state that "it was not the right time for a tax. He
asked if Mr. Szabo had ever testified in favor of a tax.
Mr. Szabo replied that typically he was not in favor of new
taxes. He thought if the state was going to apply taxes
fairly and equally it should not apply the same vehicle
rental tax to peer to peer rentals. He did not believe the
tax was fair.
4:04:58 PM
Co-Chair Merrick CLOSED public testimony.
Co-Chair Merrick indicated the committee would review the
fiscal notes associated with the bill.
4:05:25 PM
NICOLE REYNOLDS, DEPUTY DIRECTOR, TAX DIVISION, DEPARTMENT
OF REVENUE (via teleconference), relayed that the
Department of Revenue (DOR) fiscal note [FN 2 (REV)] was
indeterminate. She relayed that the division lacked enough
reliable data to estimate the revenue impact of expanding
the taxpayer base. The division expected that the bill
would have a positive effect on revenue.
Co-Chair Merrick inquired whether the reason for not having
enough information was due to the peer to peer vehicles not
disclosing the information. Ms. Reynolds responded in the
affirmative.
4:06:31 PM
JEFFREY SCHMITZ, DIRECTOR, DMV, ANCHORAGE (via
teleconference), relayed that the Department of
Administration (DOA) zero fiscal note had no financial
impact for the Division of Motor Vehicles.
4:07:23 PM
Representative Wool understood the pushback from internet
companies who wanted to keep the transactions cheaper than
transactions in brick and mortar businesses. He shared that
he had previously carried a different bill regarding Uber.
He had received pushback on different aspects of the bill,
yet it was adopted, and Uber operated in Alaska. He thought
that taxies and Uber were not that different, nor were
Airbnb or Hotels. He mentioned that the municipalities
could presently tax for internet sales as well as
traditional sales. He voiced that they all offered
essentially the same services and the same standards should
be applied. He felt the same way about rental cars and
vehicle rental platforms. He reiterated that it was
essentially the same service. He addressed the question
whether it was a good time to apply a tax. He was unsure
but noted that no one was talking about reducing the cruise
ship head tax. He stated that presently the vehicle rental
networks were liable for the tax, but the state had no way
to collect it. He believed the vehicle rental tax should be
applied evenly across the board. He thought the peer to
peer model was great and he would happily charge his
customer an extra 10 percent tax for the state. He thought
the revenue generation was beneficial.
Co-Chair Merrick indicated amendments were due by 6:00 pm
on Saturday, May 15, 2021.
HB 90 was HEARD and HELD in committee for further
consideration.
SENATE BILL NO. 55
"An Act relating to employer contributions to the
Public Employees' Retirement System of Alaska; and
providing for an effective date."
4:11:19 PM
NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, thanked the committee for hearing
the bill. He introduced the PowerPoint presentation: "SB 55
- Employer Contributions to PERS." began with slide 2
titled HB75 Employer Contributions to PERS:
Removes cap on Public Employee Retirement System
(PERS) payroll contributions made by the State of
Alaska as an employer.
? Continues to fully fund the state's obligation to
the PERS system.
Applies only to the State of Alaska, does not impact
other PERS employers.
? Does not impact Teachers Retirement System (TRS).
? Does not change retiree or active employee benefits.
? No change to employee contributions.
? Does not reduce employer contributions to PERS.
? Allows for full cost share with federal programs and
other sources used to fund state programs, thereby
reducing general fund expenditures by $25.7 million in
FY22.
4:13:17 PM
Mr. Steininger provided a background of Alaska's retirement
obligations on slide 3 titled HB75 Background: Alaska's
Retirement Obligations:
? The PERS unfunded liability was estimated to be $4.6
billion in FY20.
? Current annual cost to pay down the unfunded
liability is split between employer contributions and
the state assistance payment, or "on-behalf" payment:
O Employer contributions (22%) on employee
salaries mixed fund sources.
O On-behalf payments for Municipalities and other
PERS employers 100% UGF.
O On-behalf payment for State of Alaska as an
employer 100% UGF.
? This bill addresses the on-behalf payment for State
of Alaska as an employer.
4:14:37 PM
Mr. Steininger continued to slide 4: "State of Alaska PERS
On-Behalf Payments:"
In 2008, the legislature established a uniform rate
for payroll contributions for all PERS employers 22%.
The State of Alaska is required to pay the difference
between capped employer payroll contributions and the
full actuarial liability (30.11% in FY22).
Called the state assistance or "on-behalf" payment.
For FY22, the total on-behalf payment to PERS is
$193.5m (UGF).
$95.7m of that amount is made by the state on behalf
of itself.
The remaining $97.8m is made on behalf of 153 other
active PERS employers.
He explained that the other active Public Employees'
Retirement System (PERS) employers were municipalities and
school districts throughout the state.
4:15:57 PM
Mr. Steininger reviewed slide 5 titled HB 75 State of
Alaska as an Employer Retirement Obligation Current Law.
He explained that currently the state payroll contribution
was 22 percent of payroll totaling $246.3 million. The
state made the $95.8 million on-behalf payment with
unrestricted general funds (UGF). The slide showed the
breakdown in types of funding; Undesignated General Funds
(UGF), Designated General Fund (DGF), Other, and Federal
Receipts. He noted that the total retirement obligation was
$342.2 million, which $202 million or 59 percent was
comprised of UGF. He examined slide 6 titled "HB 75 State
of Alaska as an Employer Retirement Obligation Proposed
Law." He elucidated that by uncapping the 22 percent and
allowing the full 30.11 percent to be charged to state
payroll, the state still paid the full contribution, but
the state could apply the 30.11 percent to the other fund
sources. Consequently, eliminating the commiserate
increases in UGF that was apparent on the prior slide. He
pointed out that under the proposed law the total UGF was
$176.4 million or roughly 50 percent of the total $349.8
million cost, which was a net reduction of $25.7 million in
UGF costs to meet the same obligation. He qualified that
the $25.7 million was only the savings realized in the
first year. Savings would grow over time because as
indirect charges were charged to federal programs the state
had to provide justifications for the costs. The different
programs were on different schedules for providing the
information to the federal agencies on the way the state
charged indirect costs to the programs. He added that some
federal agencies would allow the change in the first year
and some would take up to three years to implement the
changes due to the way the state interacted with the
federal agencies to justify the programs costs. Some
programs capped the amount charged to the grants and
savings could not be realized in those cases. He relayed
that OMB analyzed various federal programs that the state
charged for payroll and found that the state could offset
the costs with UGF to ensure the programs were not harmed
and still realized the $25.7 million in savings. Over the
next several years as state agencies renegotiated the cost
allocation agreements with federal partners, the savings
number will increase in the outyears.
4:19:47 PM
Representative Josephson wanted to make sure that if an
agency received $100 million in federal matching funds, the
service would not be diminished because whatever the
service was would become part of the PERS liability. Mr.
Steininger replied that it was something that OMB worked on
in the production of the fiscal note. He explained that if
the fixed grant amount, such as the $100 million example,
could not be adjusted for changes in costs such as for PERS
than the state would not be able to collect additional
money from the federal grant. He furthered that as OMB
calculated the fiscal note, it identified federal programs
that had a fixed dollar value to ensure that OMB was not
hampering the ability to perform the work under the grant.
He delineated that as departments identified fixed dollar
programs OMB adjusted the fiscal note down because the
federal receipts could not be collected. Currently, the
full amount of the costs was covered by UGF, so where the
costs could not be covered UGF was used. The bill was
necessary to capture additional federal revenues on grants
that could be increased as costs increased.
4:22:31 PM
Representative Josephson ascertained that there had been a
lost opportunity over the years and the bill was trying to
capture the opportunity and benefit from it. Mr. Steininger
agreed with the statement.
4:22:57 PM
Mr. Steininger continued to the spreadsheet on slide 7
titled HB75: FY 2022 Budget Impact. He explained that the
provisions shifted the $100 million cost from the language
section of the operating budget and moved it into the state
personal services line. It would appear as a $1 million
increase in all funds to state agency payroll. He conveyed
that it was not an actual increase, it was simply shifting
a cost from one part of the budget to another. The slide
depicted where the cost would apply in each agency. He
could provide further detail by budget component or
program. He provided a handout in the bill file that
provided more information regarding the offsets [titled
HB75 FY 2022 Budget Impact Handout A (copy on file)].
4:24:46 PM
Representative Josephson looked at slide 7 on the
Department of Commerce, Community and Economic Development
(DCCED) line. He inquired whether professional licensing
fees would increase. Mr. Steininger responded that it was
an area in which fees would have to be revisited and
possibly recalculated. It was one area that the department
looked at to determine if the current fee collections could
cover the related costs of the program without adjustment
to the fee or what amount could be accommodated over time.
He assured that the implementation of the change would not
result in excessive changes to fees.
4:26:14 PM
Mr. Steininger advanced to the graph on slide 8 titled
"Historical PERS Contribution Rates." The slide illustrated
the on-behalf payment or actuarial rate of the state's PERS
contribution. He elaborated that the on-behalf portion was
the difference between the blue line at 22 percent and the
orange line representing the actuarial rate. The bill was
trying to address the difference between the two lines. He
noted the variability in the rates and pointed out that at
its peak the actuarial rate was 38.4 percent compared to
the current 30.1 percent. The on-behalf payment rose and
fell with the actuarial rate each year. If SB 55 was
enacted, some of the variable amount would be moved into
the personal service line of the state agency operating
budget. He alerted the committee that in future years the
committee would encounter salary adjustment change records
to accommodate the variability. It would simply shift to
agency operations versus the language section of the
operating budget.
4:28:08 PM
Representative Wool asked about the on-behalf payment made
by the state. He wondered if the bill would alter anything
for the municipalities. Mr. Steininger answered in the
negative. He indicated that OMB limited the focus of the
bill to where there was a benefit to the state. He
clarified that there was a benefit to the state but not to
the municipalities. Representative Wool thanked Mr.
Steininger for the clarification.
4:29:28 PM
Co-Chair Merrick OPENED public testimony.
4:29:36 PM
Co-Chair Merrick CLOSED public testimony.
Co-Chair Merrick asked Mr. Steininger to address the fiscal
notes.
Mr. Steininger indicated that the Department of
Administration fiscal note [FN 5 (ADM)] was prepared by the
Division of Retirement and Benefits. He explained that
since the bill impacted the PERS system it was an actuarial
fiscal note. He pointed to the additional $200 thousand
cost. He noted that in the current system, the state
assistance payment was made in a lump sum at the beginning
of the fiscal year. Moving it to the personal services line
meant the payments would be made monthly with payroll. He
expounded that there was a little bit of an investment loss
by not having a lump sum payment applied at the beginning
of the year; thus, the pension system earned slightly less.
The $200,000 cost was significantly less than the state GF
savings.
4:30:55 PM
Mr. Steininger reported that fiscal note 4 [FN4 (State
Retirement Payments)] FN 4 was prepared by OMB. He
explained that it reflected the consolidation of many
budget transactions in every place where there was a state
employee in the budget. It was the aggregate of applying
the 8.11 percent to get to the 30.11 percent costs for PERS
contributions to state employee payroll. He noted the mix
of fund sources and the distribution of the roughly $100
million in costs in FY 2022.
4:31:44 PM
Mr. Steininger indicated that the fiscal note [FN 3 (State
Retirement Payments)] was prepared by OMB and reflected the
reduction to the language section of the operating budget
where the state assistance payment was made and was added
back in fiscal note 4.
4:32:14 PM
Co-Chair Merrick thanked Mr. Steininger for finding the
cost savings.
4:32:32 PM
AT EASE
4:32:56 PM
RECONVENNED
Representative Rasmussen MOVED to report SB 55 out of
Committee with individual recommendations and the
accompanying fiscal notes.
There being NO OBJECTION, it was so ordered.
SB 55 was REPORTED out of committee with a "do pass"
recommendation and with
Co-Chair Merrick reviewed the agenda for the following day.
ADJOURNMENT
4:33:44 PM
The meeting was adjourned at 4:33 p.m.