Legislature(2005 - 2006)HOUSE FINANCE 519

04/24/2006 01:30 PM FINANCE

Download Mp3. <- Right click and save file as

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Meeting Postponed to 2:00 PM Today--
Heard & Held
<Bill Hearing Canceled>
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved Out of Committee
-- Testimony <Invitation Only> --
                  HOUSE FINANCE COMMITTEE                                                                                       
                       April 24, 2006                                                                                           
                         2:17 p.m.                                                                                              
CALL TO ORDER                                                                                                                 
Co-Chair Meyer called the House  Finance Committee meeting to                                                                   
order at 2:17:41 PM.                                                                                                          
MEMBERS PRESENT                                                                                                               
Representative Mike Chenault, Co-Chair                                                                                          
Representative Kevin Meyer, Co-Chair                                                                                            
Representative Bill Stoltze, Vice-Chair                                                                                         
Representative Richard Foster                                                                                                   
Representative Mike Hawker                                                                                                      
Representative Jim Holm                                                                                                         
Representative Reggie Joule                                                                                                     
Representative Mike Kelly                                                                                                       
Representative Beth Kerttula                                                                                                    
Representative Carl Moses                                                                                                       
Representative Bruce Weyhrauch                                                                                                  
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Wendy Lindskoog, Director, External  Affairs, Alaska Railroad                                                                   
Corporation; Gary  Bader, Chief Investment  Officer, Treasury                                                                   
Division,   Department  of   Revenue;   Tom  Boutin,   Deputy                                                                   
Commissioner, Department  of Revenue; Jaqueline  Tupou, Staff                                                                   
to Representative Weyhrauch.                                                                                                    
PRESENT VIA TELECONFERENCE                                                                                                    
Larry  Semmens, Alaska  Retirement  Management Board,  Kenai;                                                                   
Rick  Thompson, Acting  Deputy Director,  Division of  Mining                                                                   
Land and Water,  Department of Natural Resources;  John Duff,                                                                   
Borough  Manager,  Mat-Su  Borough;  Ron  Swanson,  Community                                                                   
Development Director, MatSu Borough.                                                                                            
SB 308    "An   Act    authorizing   the    Alaska   Railroad                                                                   
          Corporation to issue  revenue bonds to finance rail                                                                   
          transportation  projects that  qualify for  federal                                                                   
          financial  participation;   and  providing  for  an                                                                   
          effective date."                                                                                                      
          SB 308 was REPORTED OUT of Committee with one                                                                         
          previously published, zero fiscal note (#1; CED)                                                                      
          and "no recommendation".                                                                                              
HB 375    "An   Act  relating   to  the  retirement   benefit                                                                   
          liability  account  and  appropriations  from  that                                                                   
          account;  relating to  deposits  of certain  income                                                                   
          earned  on money received as  a result of  State v.                                                                   
          Amerada  Hess, et  al.,  1JU-77-847 Civ.  (Superior                                                                   
          Court, First Judicial  District); and providing for                                                                   
          an effective date."                                                                                                   
          HB 375 was HEARD and HELD for further                                                                                 
HB 306    "An   Act  making   certain   land  available   for                                                                   
          selection by the Matanuska-Susitna Borough."                                                                          
          HB 306 was HEARD and HELD for further                                                                                 
SENATE BILL NO. 308                                                                                                           
     "An Act  authorizing the Alaska Railroad  Corporation to                                                                   
     issue  revenue  bonds  to  finance  rail  transportation                                                                   
     projects    that   qualify    for   federal    financial                                                                   
     participation; and providing for an effective date."                                                                       
2:18:24 PM                                                                                                                    
Co-Chair Meyer noted that the  bill had been heard on Friday,                                                                   
4/21,2006, and that no amendments were being offered.                                                                           
WENDY LINDSKOOG, DIRECTOR, EXTERNAL  AFFAIRS, ALASKA RAILROAD                                                                   
CORPORATION  provided  information  on the  legislation.  She                                                                   
explained that the federal transit  administration funds were                                                                   
similar  to   federal  highway   administration  funds.   The                                                                   
railroad  qualifies under  formula  funding,  under the  FTA.                                                                   
This is  a new tool  to bond against  revenues and  would not                                                                   
affect  highway   funds.  Responding  to  a   follow-up,  she                                                                   
confirmed  that  the  appropriation would  not  affect  other                                                                   
agency funds of affect highway funds.                                                                                           
Responding  to another question  by Representative  Chenault,                                                                   
Ms. Lindskoog  noted that this  would not affect  funding for                                                                   
other agencies. Only  30 to 50 percent of the  FTA funds were                                                                   
actually used to  repay the bond debt, leaving  the remainder                                                                   
of the funds for use in other capital projects.                                                                                 
Representative Chenault  MOVED   to  REPORT   SB308  out   of                                                                   
Committee, with individual recommendations  and a zero fiscal                                                                   
note  from  the  Department  of   Commerce.  There  being  NO                                                                   
OBJECTIONS, it was so ordered.                                                                                                  
SB  308 was  REPORTED OUT  of Committee  with one  previously                                                                   
published,   zero    fiscal   note   (#1;   CED)    and   "No                                                                   
2:21:51 PM                                                                                                                    
HOUSE BILL NO. 375                                                                                                            
     "An  Act relating  to the  retirement benefit  liability                                                                   
     account and  appropriations from that  account; relating                                                                   
     to deposits  of certain income earned on  money received                                                                   
     as a result of State v. Amerada Hess, et al., 1JU-77-                                                                      
     847 Civ. (Superior Court, First Judicial District); and                                                                    
     providing for an effective date."                                                                                          
2:22:35 PM                                                                                                                    
Representative Chenault  MOVED   TO  ADOPT  Work   Draft  24-                                                                   
LS1467\L.1, Wayne,  4/24/06. There  being NO OBJECTIONS,  the                                                                   
Committee Substitute was ADOPTED.                                                                                               
2:23:16 PM                                                                                                                    
Representative  Weyhrauch, Sponsor,  discussed  the bill.  He                                                                   
noted  that it  had been  introduced  by the  House Ways  and                                                                   
Means  Committee  in early  February.  The bill  was  created                                                                   
after nine months  of public hearings on the  Public Employee                                                                   
and Teachers'  Retirement  Systems (PERS  and TRS).  The bill                                                                   
sets  up   an  account   to  hold   funds  from   legislative                                                                   
appropriations  to pay  into the  unfunded  liability of  the                                                                   
system. He explained that testimony  had revealed that, while                                                                   
cash was the  easiest way to pay the unfunded  liability, the                                                                   
State  could not  fund  one hundred  percent  of the  current                                                                   
unfunded  liability,  and  that  this  might  not  be  wisest                                                                   
action. He  stressed that there  were other demands  on State                                                                   
Representative Weyrauch  stated that the account  is somewhat                                                                   
modeled  after the Public  School Education  Fund, which  the                                                                   
legislation  has the discretion  to fund.  He noted  that the                                                                   
Alaska Retirement  Management (ARM) Board, the  provisions of                                                                   
SB  141  (enacted  in  2005),   was  tasked  with  developing                                                                   
solutions to address  the unfunded liability.  The Board took                                                                   
time to develop  its recommendations, which  was presented in                                                                   
an  appendix provided  to  Committee  members.  The Ways  and                                                                   
Means version  of the bill  adds the provisions  contained in                                                                   
these recommendations.                                                                                                          
Representative  Weyrauch  noted that  Mr.  Bader worked  most                                                                   
aggressively  on the  Committee  Substitute, as  well as  Mr.                                                                   
2:25:35 PM                                                                                                                    
LARRY  SEMMENS, ALASKA  RETIREMENT  MANAGEMENT BOARD,  KENAI,                                                                   
testified  via teleconference.  He explained  that the  board                                                                   
was  established in  October,  2005 as  a result  of SB  141,                                                                   
which directed  the board to prepare recommendations  for the                                                                   
legislature to  address the unfunded  liability of  the State                                                                   
retirement  plan. The  Board unanimously  approved the  final                                                                   
report, delivered  to the House  Ways and Means  Committee in                                                                   
[April]  2006.  He  stated that  the  proposed  bill  related                                                                   
directly to  the Board's  first priority recommendation.  The                                                                   
Board  heard   presentations   from  numerous  experts,   and                                                                   
identified funding strategies  that would have minimal impact                                                                   
on Alaskans.  He pointed out that  a key assumption  was that                                                                   
the ARM Board would accept the  FY 2008 employer contribution                                                                   
rate  at the  actuarially required  rate. He  noted that  the                                                                   
combined unfunded liability of  both the PERS and TRS systems                                                                   
had  grown from  $5.7 billion  to  $6.9 billion  by June  30,                                                                   
2005.  He stressed  that  delaying  action would  worsen  the                                                                   
2:28:55 PM                                                                                                                    
GARY  BADER,  CHIEF INVESTMENT  OFFICER,  TREASURY  DIVISION,                                                                   
DEPARTMENT OF REVENUE testified  regarding the bill. He noted                                                                   
that the  Department was staff  to the ARM Board,  and stated                                                                   
that his  presentation  related to the  Board's priority  one                                                                   
recommendation.  He  referred   to  a  handout  prepared  for                                                                   
Committee members. He stated that  the first priority was the                                                                   
ARM Board's strategy for dealing  with the long-term approach                                                                   
to address  the unfunded liability  of the system.  The Board                                                                   
envisioned that this strategy  would be put in place in 2006,                                                                   
so  as  to be  operative  during  the  FY 2008  budget.  This                                                                   
recommendation did  not anticipate an appropriation  from the                                                                   
Legislature in the  current fiscal year, but rather  set up a                                                                   
mechanism for amounts funded in the future.                                                                                     
On  Page 2  of the  report,  Mr. Bader  pointed  out line  3,                                                                   
showing  the  increase  in  the  unfunded  actuarial  accrued                                                                   
liability.  He  stated  that  the  reason  for  the  increase                                                                   
between  FY 2004  and 2005,  dropping the  funded ratio,  was                                                                   
that  contributions were  not yet  taking place  at the  rate                                                                   
anticipated  by  the  actuary.  The  FY  2007  rate  that  is                                                                   
currently  operational is  26% for  the teacher's  retirement                                                                   
system, compared  to 42 percent  anticipated by  the actuary.                                                                   
He noted the  $2.5 billion of unfunded liability  which would                                                                   
lead to a shortfall in the coming fiscal year.                                                                                  
2:32:41 PM                                                                                                                    
Mr. Bader  pointed out the history  of the funding  ratios in                                                                   
the Teacher's Retirement  System, going back to  1979 (Page 3                                                                   
of the handout). He noted that,  while the State did not need                                                                   
to  eliminate its  unfunded liability  in one  year, it  must                                                                   
establish a mechanism for doing so.                                                                                             
2:33:13 PM                                                                                                                    
Mr. Bader pointed  out that Page 4 gives similar  numbers for                                                                   
the  Public  Employees Retirement  System.  The  contribution                                                                   
rate for employers  set by the ARM Board was  27%, as opposed                                                                   
to the amount  recommended by the actuary at  32.4%. He noted                                                                   
two reasons  that the  ARM board  had set  the rates  as they                                                                   
are: a  current regulation stipulating  that PERS  could only                                                                   
increment its  employer contribution  rates by 5%  each year;                                                                   
the rate  was set at  October, since  that was the  rate that                                                                   
employers  had been  led to expect  in the  coming year.  The                                                                   
combination of  the unfunded liability  is down  $4.4 billion                                                                   
for PERS, resulting in $363 million  fewer earnings at 8.25%.                                                                   
He  concluded that  not  having adequate  money  in the  fund                                                                   
results in increased costs.                                                                                                     
2:34:43 PM                                                                                                                    
Mr. Bader reviewed Page 5 and  noted that the State had faced                                                                   
these  circumstances  in  the  past, but  that  the  unfunded                                                                   
liability   had   been   addressed   through   the   employer                                                                   
contribution rate.                                                                                                              
2:35:04 PM                                                                                                                    
Mr. Bader compared contribution  rates, and noted an increase                                                                   
in PERS of 4.24  percent, and for TRS of .36  percent [Page 6                                                                   
compares data  on each fund in  fiscal years 2004  and 2005.]                                                                   
The funded ratio for the liability decreased.                                                                                   
2:35:55 PM                                                                                                                    
Mr.  Bader  directed  Committee   members  to  compare  three                                                                   
columns:  the  amortization  period;   employer  contribution                                                                   
rate;  and  supplemental  contributions  [Page  7  lists  the                                                                   
amortization  period for  TRS].   He explained  that, if  one                                                                   
chose a time period of 25 years  to fully fund the system, at                                                                   
an employer  contribution  rate of 16  percent, $146  million                                                                   
additional  funds would  be needed  to  complete funding.  He                                                                   
noted that,  even at the  current employer contribution  rate                                                                   
of 26  percent, $90  million would still  be needed  to fully                                                                   
fund the system  in a 25-year period. He predicted  that when                                                                   
the Board  sets its  actuarial assumptions,  it will  set the                                                                   
amortization   at   30   years,   bringing   the   additional                                                                   
contributions  needed  down to  $71  million  at the  current                                                                   
contribution rate.                                                                                                              
2:37:58 PM                                                                                                                    
Mr.   Bader   reviewed   Page  8,   which   illustrates   the                                                                   
amortization periods  for PRS, and observed  that $70 million                                                                   
is needed to eliminate the liability over 30 years.                                                                             
2:38:45 PM                                                                                                                    
Mr. Bader noted the use of the  term "past service cost rate"                                                                   
contained  in the  proposed legislation.  Page 9  illustrates                                                                   
how  the  past   service  cost  rate  is  calculated   by  an                                                                   
actuarial.  He  maintained  that  it was  important,  not  to                                                                   
master the figures on the page,  but rather to understand and                                                                   
uniformly  apply the  term when  it is written  into law.  He                                                                   
pointed  out  line  4, representing  the  level  of  unfunded                                                                   
liability  at the  time of  cost rate  calculation. He  noted                                                                   
that each year the past service  cost rate was built based on                                                                   
the occurrences of the previous year.                                                                                           
2:40:16 PM                                                                                                                    
Mr.  Bader  discussed  Page  10,   which  outlines  the  plan                                                                   
contained  in  the  proposed   legislation.  A  past  service                                                                   
liability  account  would  be created,  requiring  an  annual                                                                   
appropriation  from the  legislature.  He  observed that  TRS                                                                   
employers, other than the State  of Alaska and the University                                                                   
of  Alaska, would  be paid  from this  account, although  not                                                                   
directly  into   the  retirement  account.  This   gives  the                                                                   
employer the ability  to assess uniform rates in  the case of                                                                   
an  employee  who  is partially  federally  funded.  He  also                                                                   
stated  that if the  legislature did  not appropriate  enough                                                                   
funds to pay the calculations  in the bill, they would be pro                                                                   
rated. If  there remained  an excess of  funds at the  end of                                                                   
the year, the funds would lapse into the General Fund.                                                                          
2:42:34 PM                                                                                                                    
As  to the  question  of  why the  State  of Alaska  and  the                                                                   
University of Alaska were not  included in this strategy, Mr.                                                                   
Bader commented that  they could easily be included,  but the                                                                   
Board believed  that the  Legislature  could deal with  these                                                                   
two budgets  without input from  the ARM Board. He  noted the                                                                   
Legislature could choose to fund  these personnel services at                                                                   
whatever actuarial rate they determined was appropriate.                                                                        
2:43:33 PM                                                                                                                    
Regarding  the question of  why PERS  and TRS employers  were                                                                   
treated differently,  Mr. Bader noted that TRS  employers all                                                                   
have the  same rate  and system;  PERS employers  participate                                                                   
differently  in   the  system  at  various   rates  [Page  11                                                                   
addresses the  plan for PERS  employers]. He stated  that the                                                                   
ARM Board believed that employers  should have a stake in the                                                                   
liability,  however,  that a  large  portion  of the  support                                                                   
should come  from the State.  He pointed  out that in  a past                                                                   
piece of legislation,  reference was made to  an average past                                                                   
service cost rate.  An average past service cost  rate sets a                                                                   
maximum for  the State as to  the amount of support  given to                                                                   
municipalities   and    school   districts.    The   proposed                                                                   
legislation directs  the State to "provide the  lesser of the                                                                   
past  service  cost  rate  of   the  employer's  three  years                                                                   
2:46:05 PM                                                                                                                    
Mr.  Bader  explained that  the  ARM  board also  desired  to                                                                   
address the fact that some employers  have paid more into the                                                                   
system in the past two years than  required. It was felt that                                                                   
those  employers  should  not  be penalized  for  being  pro-                                                                   
active.  He  noted  that  the  Board  recommends  that  fifty                                                                   
percent should be rebated to them.  At the time the board was                                                                   
considering this plan, pension  obligation bonds had not been                                                                   
moved through legislation. He  pointed out that the Committee                                                                   
should be informed  about new developments. He  noted that an                                                                   
amendment  by  Representative  Weyhrauch could  address  this                                                                   
issue.  He  proposed that  unless  the  bill was  amended,  a                                                                   
greater  amount  might  be returned  to  municipalities  than                                                                   
intended by the State.                                                                                                          
2:48:26 PM                                                                                                                    
Mr. Bader  pointed out  that Page 12  gives examples  of past                                                                   
service cost rate calculations.  Different communities - like                                                                   
Anchorage,  Fairbanks, and  other -  would cost  the State  a                                                                   
variety of  amounts, based on  their past service  cost rate.                                                                   
He concluded  that  these cost  rates could  vary by a  great                                                                   
deal, but that these rates were averaged.                                                                                       
2:50:53 PM                                                                                                                    
Mr.  Bader stated  that the  Board  suggested achieving  full                                                                   
funding over an actuary period  of 30 years, and changing the                                                                   
employer contribution  rate to  agree with the  actuary [Page                                                                   
13  outlines various  goals  suggested by  the  Board in  any                                                                   
solution].  He  stressed that  they  did  not wish  to  cause                                                                   
disruption in  public service,  which is why the  legislation                                                                   
would  provide additional  support to  communities. The  plan                                                                   
encourages  State  participation,   as  well  as  accelerated                                                                   
contributions,  providing a means  of equitable support,  and                                                                   
minimal  supplanting of  Federal and  other non General  Fund                                                                   
2:52:00 PM                                                                                                                    
TOM  BOUTIN,  DEPUTY  COMMISSIONER,   DEPARTMENT  OF  REVENUE                                                                   
testified. He noted that the ARM  board voted unanimously for                                                                   
the concepts contained in the  Committee Substitute, with the                                                                   
caveat that since  this was for funding in FY  2008, it would                                                                   
not impact the Governor's current  priorities. He pointed out                                                                   
that the  fiscal note prepared  by the Department  of Revenue                                                                   
reflects no incremental cost for  implementation. He observed                                                                   
that one  state had been  placed on negative  credit outlook,                                                                   
because  their  latest  actuarial   reflected  a  60  percent                                                                   
funding level. He observed that  TERS is close to 60 percent,                                                                   
and proposed  that  if the State  was planning  to enter  the                                                                   
credit market,  it would be good  to have a plan in  place to                                                                   
address the liability.                                                                                                          
2:54:07 PM                                                                                                                    
Representative  Joule  asked  about employers  with  no  past                                                                   
(cost)  service liability  and  how they  would benefit  from                                                                   
this strategy.  Mr. Bader replied  that if communities  had a                                                                   
past service cost rate of less  than five percent, they would                                                                   
not  receive  the  benefit,  since   five  percent  would  be                                                                   
deducted under  the calculations. Responding to  a follow-up,                                                                   
he confirmed  that if  a community had  no past cost  service                                                                   
liability, they would receive no support.                                                                                       
Representative Kelly asked  how certainly  this system  would                                                                   
accomplish a goal at the federal  level. Mr. Bader noted that                                                                   
currently  the system set  one rate,  and all employers  paid                                                                   
this rate.                                                                                                                      
2:56:12 PM                                                                                                                    
Representative Kerttula  asked  why  the system  operated  on                                                                   
averages  and not  actual employer's  percentages. Mr.  Bader                                                                   
conceded that this was possible,  and gave the example of the                                                                   
cost for  fully funding  the past service  cost rate  for all                                                                   
communities for PERS being at  $82 million, as opposed to $47                                                                   
million with a  cost average approach. The  Legislature could                                                                   
choose to fund a level based on  a percentage, rather than an                                                                   
average.  He  noted  that  20   communities  paid  more  than                                                                   
required and would qualify for fifty percent incentive.                                                                         
2:57:29 PM                                                                                                                    
Representative Chenault  asked    about    incentives,    and                                                                   
observed that  those communities that have already  paid down                                                                   
their unfunded  liability, would be penalized  by 50 percent.                                                                   
Mr. Bader  maintained that paying  the liability early  was a                                                                   
benefit in itself, and noted that  fifty percent was given to                                                                   
communities last year in the operating budget.                                                                                  
2:58:30 PM                                                                                                                    
Representative Chenault  noted     the    concern    for    a                                                                   
municipality that paid more than  required, and proposed that                                                                   
if the  solution were  implemented, that  community would  in                                                                   
effect be penalized, having not  received the same benefit as                                                                   
other communities.                                                                                                              
2:59:15 PM                                                                                                                    
Representative Chenault  closed   public  testimony   on  the                                                                   
2:59:57 PM                                                                                                                    
Representative Weyhrauch MOVED   Amendment  #1,24-LS1467\L.1,                                                                   
Wayne, 4/24/06. Representative Stoltze OBJECTED.                                                                                
JAQUELINE TUPOU, STAFF TO REPRESENTATIVE  WEYHRAUCH, deferred                                                                   
to Mr. Bader to address the amendment.                                                                                          
Mr. Bader  commented on the  amendment. He observed  that the                                                                   
amendment  proposed an incentive  of "50  percent or  no more                                                                   
than $3,300,000".  He noted  that the $3,300,000  represented                                                                   
50  percent of  what a  maximum contribution  by a  community                                                                   
might have been;  in this case the municipality  of Anchorage                                                                   
paid $6.6 million into their unfunded  liability that was not                                                                   
required. In order to prevent  communities from accessing the                                                                   
system for  very large  sums of money,  this amendment  set a                                                                   
Representative Weyhrauch pointed    out   discussion    about                                                                   
certain communities  that maintained  "permanent funds",  and                                                                   
asked how this would interact  with the bill. Mr. Bader noted                                                                   
that this language  would restrict those communities  who pay                                                                   
more than $6.6  million in one year from receiving  more than                                                                   
$3.3 million. He pointed out that  the ARM board did not wish                                                                   
a  large number  of communities  to  pay down  their debt  in                                                                   
order to receive the 50 percent benefit.                                                                                        
3:03:08 PM                                                                                                                    
Representative Weyhrauch conceded  that  there  existed  some                                                                   
confusion   over  the   proposed   system.  He   acknowledged                                                                   
questions by  Representative Joule,  and noted that  the goal                                                                   
was  to implement  significant  portions of  the solution  to                                                                   
begin a long-term strategic plan.                                                                                               
3:03:53 PM                                                                                                                    
Representative Kelly referred  to a comment by Representative                                                                   
Kerttula,   and   noted  that   Fairbanks   had   experienced                                                                   
unexpectedly large  bad outcomes. He asked if  there were any                                                                   
provisions  in  place to  prevent  this from  occurring.  Mr.                                                                   
Bader expressed  his belief  that the  Legislature wished  to                                                                   
address communities  that have experienced the  highest level                                                                   
of past  service liability. He  proposed that  if communities                                                                   
experienced  high  levels  of liability,  language  might  be                                                                   
changed  and the  legislature might  make a  policy call  and                                                                   
dictate a particular percent.                                                                                                   
3:05:24 PM                                                                                                                    
Representative Holm observed that  in the past there had been                                                                   
forgiveness  of liability  for some communities  and  not for                                                                   
others. He  asked how  there might be  a sense of  equanimity                                                                   
established.  Mr. Bader  stated that  he was  unaware of  any                                                                   
forgiveness  given. He  also  noted his  understanding  that,                                                                   
while  rates  set  for  PERS employers  were  based  on  best                                                                   
efforts by  the actuary  and the  Division of Retirement  and                                                                   
Benefits,  there  was a  certain  commonality  since not  all                                                                   
employees  remain with  the same  employer  for their  entire                                                                   
career. He proposed  that if an employee switched  to another                                                                   
employer after  many years of  service and received  a higher                                                                   
rate  of  pay,   their  original  employer   might  face  the                                                                   
liability  for  their  retirement costs.  He  concluded  that                                                                   
employers    might    face     various    liabilities,    and                                                                   
municipalities'  debts  may not  be  a  result of  their  own                                                                   
fiscal policies.  This is why  averages are suggested,  while                                                                   
at the same time, the legislature is given discretion.                                                                          
3:08:03 PM                                                                                                                    
Representative Kelly asked how  Amendment #1 would affect the                                                                   
fairness  between  communities.  Mr. Bader  noted  that  this                                                                   
would not  affect this issue.  It would  merely set a  cap on                                                                   
the amount reimbursed should a community pay liability.                                                                         
3:08:56 PM                                                                                                                    
Representative  Hawker noted  that  the same  issue had  been                                                                   
raised in  discussion on HB 278.  He commented that,  in work                                                                   
with Representative  Kelly, the  solution determined  was not                                                                   
to  create  an arbitrary  reimbursement  amount,  but  rather                                                                   
language in  HB 278,  stating that  if any municipality  made                                                                   
extra  payments. Payments  should  not be  considered if  the                                                                   
State,  through   another  mechanism,   made  payments   that                                                                   
benefited  multiple employers.  He  stated that  he was  more                                                                   
supportive of that concept than this amendment.                                                                                 
3:10:34 PM                                                                                                                    
Co-Chair Meyer referred   to   the  $6.9   billion   unfunded                                                                   
liability,  and asked how  this broke  down by local,  state,                                                                   
and  federal  governments.  Mr.  Bader  did  not  have  these                                                                   
figures, but stated that the Department  of Education website                                                                   
reflected percent  of funding  for the operating  budget. The                                                                   
federal and  special revenue  funds were  over 20 percent  of                                                                   
the total amount. He compared  this to 10 percent as shown in                                                                   
the  operating  budget.  He concluded  it  was  difficult  to                                                                   
determine percentages.                                                                                                          
3:12:46 PM                                                                                                                    
Representative Kelly observed  that for a community  the size                                                                   
of  Fairbanks,  taking  into consideration  the  100  percent                                                                   
multiplier on  the average payroll  cost, the $3  million cap                                                                   
would have an  affect. Mr. Bader responded that  the cap only                                                                   
applied to the incentive payments for overpayment.                                                                              
Representative Stoltze REMOVED his OBJECTION.                                                                                   
Representative Hawker  MAINTAINED an OBJECTION.  He suggested                                                                   
while there  might be room  in this  context for a  reward to                                                                   
employers that  met their liability,  he was not  prepared to                                                                   
support it at this time.                                                                                                        
Representative  Kelly also  expressed that  while he  was not                                                                   
against  the amendment,  he  needed  to understand  how  this                                                                   
affected specific circumstances.                                                                                                
Co-Chair Meyer expressed some  discomfort with the amendment.                                                                   
Representative Weyhrauch noted   that   the   amendment   was                                                                   
developed  with the Department.  He stated  that it  does not                                                                   
preclude other  options, but stressed  that it  was important                                                                   
to  continue  moving  ahead  during the  final  days  of  the                                                                   
legislative  session. He  acknowledged  that the  bill was  a                                                                   
"work in progress", and that he  was not absolutely committed                                                                   
to  the amendment.  He maintained  that it  was an  important                                                                   
issue that should move forward.                                                                                                 
Representative Kelly agreed,  but  suggested  that  the  step                                                                   
ought to be refined.                                                                                                            
Representative  Hawker asked  if the  chair intended  to move                                                                   
the  bill.  Co-Chair Meyer  responded  that  it was  not  the                                                                   
Representative Weyhrauch WITHDREW the amendment.                                                                                
Co-Chair Meyer asked  how the unfunded liability  compared to                                                                   
other  states.  Mr. Bader  noted  that  most states  did  not                                                                   
include the medical  aspect of their program  in the unfunded                                                                   
liability  calculations,  meaning that  the  state of  Alaska                                                                   
might  be better  well  off than  the  numbers reflected.  He                                                                   
stressed that time was a key factor in the solution.                                                                            
3:18:02 PM                                                                                                                    
Representative Weyhrauch observed    that   experts   advised                                                                   
legislatures  throughout  the country.  He  noted that  other                                                                   
states were taking more aggressive  means to address unfunded                                                                   
liabilities created  as a result of the economic  downturn of                                                                   
September,  2001.  He  proposed  that  Alaska  could  take  a                                                                   
leadership role in the country.                                                                                                 
3:19:19 PM                                                                                                                    
Co-Chair  Meyer expressed  concern with  the loss of  federal                                                                   
contributions and questioned the  fund source. Representative                                                                   
Weyhrauch clarified  that the  Amerada Hess funds  were taken                                                                   
out  of  the legislation.  The  funding  mechanism  would  be                                                                   
capital   funds.  He   noted  that   David  Teal,   Director,                                                                   
Legislative Finance Division,  could provide more information                                                                   
regarding the federal liability.                                                                                                
3:21:16 PM                                                                                                                    
Representative  Hawker referred to  section (e),  which would                                                                   
require a rebate to municipalities.  He observed that it is a                                                                   
policy call, as  to whether the Legislature  wants to provide                                                                   
an incentive.  He questioned if  the intent is to  provide an                                                                   
incentive  and  whether section  (e)  should  be deleted.  He                                                                   
added  that the  Administration  opposes  the utilization  of                                                                   
Municipal  liability  bonds,  although  the  Legislature  has                                                                   
allowed the  use for  TRS. He noted  that the same  procedure                                                                   
would be needed for PRS.                                                                                                        
HB  375  was   heard  and  HELD  in  Committee   for  further                                                                   
3:24:15 PM                                                                                                                    
HOUSE BILL NO. 306                                                                                                            
     "An Act making certain land available for selection by                                                                     
     the Matanuska-Susitna Borough."                                                                                            
Representative  Stoltze,  sponsor, spoke  in  support of  the                                                                   
legislation.  He observed that  the Mat-Su Borough  requested                                                                   
the legislation.  The legislation would transfer  land out of                                                                   
a public use  area as part of the borough's  land entitlement                                                                   
to facilitate  a  proposed development.  The legislation  was                                                                   
amended in the previous committee  with the addition of a 600                                                                   
feet set back on the Little Susitna  River and an requirement                                                                   
of a vote in the MatSu Borough prior to conveyance.                                                                             
RICK  THOMPSON, ACTING  DEPUTY DIRECTOR,  DIVISION OF  MINING                                                                   
LAND AND  WATER, DEPARTMENT  OF NATURAL RESOURCES,  testified                                                                   
via  teleconference   in  support  of  the   legislation.  He                                                                   
observed  that  the department  worked  with  the borough  to                                                                   
achieve the objectives set out in the legislation.                                                                              
In response  to a  question by  Representative Kerttula,  Mr.                                                                   
Thompson  noted that  the public  use area  was set aside  in                                                                   
either 1984 or 1986. He thought  the margin was approximately                                                                   
a half a mile.  Public use areas sustain all uses  and do not                                                                   
restrict   public  use   for   hunting,   fishing  or   other                                                                   
recreational uses.  The ski area activities were  not thought                                                                   
to  conflict  with  the  public   use  at  the  time  of  its                                                                   
conception.  He thought that  the planned  ski area  would be                                                                   
10,000 acres.                                                                                                                   
JOHN  DUFF, BOROUGH  MANAGER, MAT-SU  BOROUGH, testified  via                                                                   
teleconference  in support  of the  legislation. He  observed                                                                   
that  the legislation  would convey  200  acres, which  would                                                                   
provide access  to other borough  properties and  is critical                                                                   
to the  success of  the Hatcher  Pass Ski  Area project.  The                                                                   
borough has  3,000 acres  immediately west  of the  200 acres                                                                   
being proposed  for transfer.  The addition  would allow  for                                                                   
development on  the northern  part, supplemental  parking for                                                                   
the alpine  ski area, and  community picnic area  and trails.                                                                   
The  project  provides  public and  private  partnership  and                                                                   
fulfills  long-term economic  objectives for  diversification                                                                   
of the tax  base and recreational opportunities.  The Hatcher                                                                   
Pass  Management  Unit,  which  is open  for  public  use  is                                                                   
200,000 acres in  size. Local and state funds  have been used                                                                   
to  provide infrastructure  improvements  such as  electrical                                                                   
power and parking. The borough  has conducted numerous public                                                                   
hearings  on various  aspects  of  the project.  The  borough                                                                   
anticipates further  public hearings. Northern  Economics has                                                                   
completed  an  economic assessment,  which  identified  1,600                                                                   
jobs would be created and a public  and private investment of                                                                   
approximately  $41 million  in  investments. The  legislation                                                                   
contains lands  to be  transferred that  are critical  to the                                                                   
success of the project.                                                                                                         
3:33:58 PM                                                                                                                    
Representative   Kerttula   asked   how   many   acres   were                                                                   
developable.  Mr. Duffy  noted that  there are  3,000 on  the                                                                   
south side of Government Peak,  where most of the residential                                                                   
village development  would take place.  An additional 5  - 10                                                                   
acres would  be used  for the lodge.  He clarified  that they                                                                   
are only asking for 200 acres  at this time. He observed that                                                                   
the entire area borders the Lower  Susitna River. The Hatcher                                                                   
Pass Management  Plan has  a setback of  200 feet.  The House                                                                   
Resource Committee  added a  600 foot  setback, which  is the                                                                   
river corridor.                                                                                                                 
3:36:13 PM                                                                                                                    
Representative  Kerttula asked if  the negotiation  price was                                                                   
public.  Mr.  Duffy observed  that  the  price has  not  been                                                                   
negotiated. There is a joint venture  between the borough and                                                                   
JL  Properties,  where the  borough  would provide  the  real                                                                   
property assets and JL Properties  would provide the majority                                                                   
of the funding  (approximately $31 million) to  invest in the                                                                   
alpine  ski area  and the  south side  residential/commercial                                                                   
3:37:24 PM                                                                                                                    
RON SWANSON,  COMMUNITY DEVELOPMENT DIRECTOR,  MATSU BOROUGH,                                                                   
pointed  out  that  the  Hatcher Pass  Public  Use  Area  was                                                                   
created in  1986. The  management plan  was created  the same                                                                   
year,  but amended  in 1989,  in  response to  a proposal  to                                                                   
build a ski area. The ski area  for a seasonal resort was not                                                                   
considered for three years. The  lease area does cover public                                                                   
use, anywhere from one half to  three-quarters of a mile wide                                                                   
on either side  of the river. He maintained  that the request                                                                   
is within their  municipal land entitlement and  objective of                                                                   
recreational  and  economic diversity.  An  extensive  public                                                                   
process  was in  its  final  stages, including  two  advisory                                                                   
board  public hearings.  Any  actions will  receive  scrutiny                                                                   
from the  public.  He proposed  that the current  plan  was a                                                                   
great deal more restrictive than the 1989 plan.                                                                                 
3:40:05 PM                                                                                                                    
JAY  NOLFI,  BIG  LAKE,  testified  via  teleconference.  She                                                                   
expressed   concern  about  conveying   the  properties   for                                                                   
economic development.  She suggested  that designated  public                                                                   
use  property  was  being  given to  a  private  company  for                                                                   
development and that this was  a case of imminent domain. She                                                                   
also noted  that the  longevity  bonus was  taken due to  non                                                                   
sustainability.  She   applied  this  term  to   the  current                                                                   
situation. She  stressed that it  was the intention  when the                                                                   
area  was designated  that  it  be used  for  public use  and                                                                   
benefit  all people.  She stated  that the  residents of  the                                                                   
area were not  in support of the project, and  suggested that                                                                   
the entire project should be placed  on the ballot. She noted                                                                   
that setback  projections were  not adequate to  meet borough                                                                   
3:43:48 PM                                                                                                                    
Representative Stoltze   agreed  that  these concerns  should                                                                   
be worked out in further public process.                                                                                        
Co-Chair Meyer closed public testimony on the bill.                                                                             
Representative Hawker  noted that the Alaska  Outdoor Council                                                                   
testified in opposition in the previous Committee.                                                                              
3:45:00 PM                                                                                                                    
Co-Chair Meyer noted  that  the  bill  would  be  held  until                                                                   
Wednesday, at which time amendments would be heard.                                                                             
HB  306  was   HEARD  AND  HELD  in  Committee   for  further                                                                   
The meeting was adjourned at 3:45 PM                                                                                            

Document Name Date/Time Subjects