Legislature(2007 - 2008)HOUSE FINANCE 519

03/15/2007 01:30 PM FINANCE

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01:53:07 PM Start
01:54:42 PM HB95 || HB96
02:22:44 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Heard & Held
Adoption of Committee Substitute
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                       March 15, 2007                                                                                           
                         1:53 P.M.                                                                                              
CALL TO ORDER                                                                                                                 
Co-Chair Chenault called the House Finance Committee meeting                                                                    
to order at 1:53:07 PM.                                                                                                       
MEMBERS PRESENT                                                                                                               
Representative Mike Chenault, Co-Chair                                                                                          
Representative Kevin Meyer, Co-Chair                                                                                            
Representative Bill Stoltze, Vice-Chair                                                                                         
Representative Harry Crawford                                                                                                   
Representative Richard Foster                                                                                                   
Representative Les Gara                                                                                                         
Representative Mike Hawker                                                                                                      
Representative Reggie Joule                                                                                                     
Representative Mike Kelly                                                                                                       
Representative Mary Nelson                                                                                                      
Representative Bill Thomas Jr.                                                                                                  
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Sharon Kelly, Staff, Representative Mike Chenault; David                                                                        
Teal, Director, Legislative Finance Division                                                                                    
HB 95     An Act making appropriations for the operating and                                                                    
          loan  program  expenses  of state  government,  for                                                                   
          certain programs,  and to capitalize  funds; making                                                                   
          appropriations   under   art.   IX,   sec.   17(c),                                                                   
          Constitution of the  State of Alaska; and providing                                                                   
          for an effective date.                                                                                                
          HB 95 was HEARD & HELD in Committee for further                                                                       
HB 96     An Act making appropriations for the operating and                                                                    
          capital expenses of the state's integrated                                                                            
          comprehensive mental health program; and providing                                                                    
          for an effective date.                                                                                                
          HB 96 was HEARD & HELD in Committee for further                                                                       
HOUSE BILL NO. 95                                                                                                             
     An Act making appropriations  for the operating and loan                                                                   
     program  expenses  of  state   government,  for  certain                                                                   
     programs,    and    to    capitalize    funds;    making                                                                   
     appropriations  under art. IX, sec.  17(c), Constitution                                                                   
     of the State  of Alaska; and providing  for an effective                                                                   
HOUSE BILL NO. 96                                                                                                             
     An  Act  making  appropriations for  the  operating  and                                                                   
     capital    expenses    of   the    state's    integrated                                                                   
     comprehensive mental  health program; and  providing for                                                                   
     an effective date.                                                                                                         
1:54:42 PM                                                                                                                    
Co-Chair  Meyer  MOVED  to  ADOPT   work  draft  25-GH1013\O,                                                                   
Bailey,  3/15/07,  as  the  version   of  HB  95  before  the                                                                   
Committee.   (Copy on  File).  There  being NO OBJECTION,  it                                                                   
was adopted.                                                                                                                    
Co-Chair  Meyer  MOVED  to  ADOPT   work  draft  25-GH1015\E,                                                                   
Bailey,  3/14/07,  as  the  version   of  HB  96  before  the                                                                   
Committee.   (Copy on  File).  There  being NO OBJECTION,  it                                                                   
was adopted.                                                                                                                    
1:55:40 PM                                                                                                                    
Co-Chair Chenault  explained that  public testimony  would be                                                                   
heard on  Friday, Saturday  and Monday, March  16, 17  & 19.                                                                    
The  amendment deadline  is Monday,  March 19   at 5:00  p.m.                                                                   
Amendments must be received by  the Chairman's office by that                                                                   
time.   The  Committee will  begin to  address amendments  on                                                                   
Tuesday, March  20,  with  the intention  to pass both  bills                                                                   
out of Committee no later than Thursday, March 22.                                                                              
Co-Chair Chenault addressed some  large items included in the                                                                   
Governor's  bill  and  how  they  would  be  handled  in  the                                                                   
proposed HB  95.  He said  Sharon Kelly would  review changes                                                                   
to both bills:                                                                                                                  
   ·    The General Fund total in the committee substitute                                                                      
        is $3.46 billion dollars;                                                                                               
   ·    The Governor's amended bill totaled $3.61 million                                                                       
        dollars; and                                                                                                            
   ·    There is a potential savings of $163 million dollars                                                                    
        more than the Governor's Amended budget.                                                                                
1:58:28 PM                                                                                                                    
SHARON KELLY, STAFF, REPRESENTATIVE MIKE CHENAULT, provided                                                                     
a presentation on the House Finance Committee substitutes                                                                       
for HB 95 and HB 96.  She discussed the order:                                                                                  
   1. Review of the Subcommittee process and action                                                                             
   2. Review of language changes                                                                                                
   3. Review of the Mental Health Bill                                                                                          
Ms. Kelly explained  that the operating  budget appropriation                                                                   
and  the  mental  health  budget have  gone  through  a  long                                                                   
process   to  achieve   recommendations   of  the   committee                                                                   
   1. The House Finance subcommittees for the 25  Legislature                                                                   
     were appointed in January.                                                                                                 
   2. During January and February, the Subcommittee  reviewed                                                                   
     agency   budgets  while   waiting  for  the   Governor's                                                                   
   3. On March 1,   442 amendments  were  delivered from  the                                                                   
     Governor   to  the  Legislature.     The   subcommittees                                                                   
     reviewed   those  amendments,   adopting,  reducing   or                                                                   
     rejecting  them.   Subcommittee action  closed by  March                                                                   
   4. At the   request  of   Co-Chair  Chenault,   amendments                                                                   
     pertaining to fuel were removed  by the subcommittees to                                                                   
     avoid  increases added  to the  FY09 base  budget.   The                                                                   
     Administration  had  requested  $16 million  dollars  in                                                                   
     that budget.  Language has  been added that allows up to                                                                   
     $8 million  dollars more than  requested for a  total of                                                                   
     $24 million,  more in  line with the  FY08 costs.   That                                                                   
     appropriation is  contingent upon the price  of oil with                                                                   
     a  base of  $35  dollars per  barrel  and a  cap of  $58                                                                   
     dollars per barrel.                                                                                                        
   5. Subcommittees  were  requested  to  remove   retirement                                                                   
     related  fund source changes  and action, which  brought                                                                   
     budget figures back to a consistent basis.                                                                                 
   6. Subcommittees reviewed   language  pertaining  to  each                                                                   
     department and their recommendations.                                                                                      
   7. All  subcommittee   recommendations   appear   in   the                                                                   
     committee  substitute  (CS); the  only  addition is  the                                                                   
     $1.3 million  General Fund  dollars, which replaces  Oil                                                                   
     and  Hazardous Funds  in  the Department  of Military  &                                                                   
     Veterans  Affairs  and Department  of  Transportation  &                                                                   
     Public Facilities budget.                                                                                                  
   8. Subcommittee final closeouts and narratives  are posted                                                                   
     for the public on the Legislative Finance website.                                                                         
2:00:47 PM                                                                                                                    
Ms. Kelly indicated the language differences from the                                                                           
Governor's bill including the subcommittee changes and those                                                                    
proposed by Co-Chair Chenault.                                                                                                  
   ·    Section 4 added legislative intent on Page 56.                                                                          
   ·    Section 5 added legislative intent.                                                                                     
   ·    Section 6, the Alaska Aerospace  Development added in                                                                   
        federal receipts.                                                                                                       
   ·    Section   7,   for   the   Alaska   Housing   Finance                                                                   
        Corporation (AHFC) dividends will go  into the Alaska                                                                   
        Capital  Income  Account  in  the   amount  of  $38.8                                                                   
        million dollars.                                                                                                        
   ·    Section  8, the  Alaska  Industrial  Development  and                                                                   
        Export Authority (AIDEA)  dividends will go  into the                                                                   
        Alaska  Capital  Income  Fund  instead  of  the  debt                                                                   
        retirement in the amount of $10 million dollars.                                                                        
   ·    Section 9 - no changes                                                                                                  
   ·    Section  10,  the  Alaska  Student  Loan  Corporation                                                                   
        (ASLC) dividends  will  go  into the  Capital  Income                                                                   
        Fund in the amount of $1.2 million dollars                                                                              
   ·    Section 11, the Department of Administration  items B                                                                   
        & C  were  added  together  to  total  $2.51  million                                                                   
   ·    Section 12, previously  labeled Section  11 -  to the                                                                   
        Department  of   Corrections   subcommittee   removed                                                                   
        health care costs,  an open ended allocation  for the                                                                   
        inmate  health  care;  the  Subcommittee  added  $1.9                                                                   
        million  dollars.    Inmate  health   costs  will  be                                                                   
        addressed in another appropriation bill.                                                                                
   ·    Section 13, in  the Department  of Education  & Early                                                                   
        Development  component,   education  was   previously                                                                   
        funded through HB 97.   The amount in HB  95 is $291,                                                                   
        $381 & $200, making  a $30 million  dollar reduction,                                                                   
        coming from the  Governor's proposed amendments  with                                                                   
        a  $75   million   dollar  reduction   from   Teacher                                                                   
        Retirement System (TRS).                                                                                                
   ·    Section   14   covers   retirement   funding   direct                                                                   
        appropriations  and deposits  to  the  Department  of                                                                   
        Administration  to fund  TRS,  reducing  the rate  to                                                                   
        12.5%; Section  C includes  a direct  deposit to  the                                                                   
        Department  of  Education  &  Early  Development  and                                                                   
        reduces the rate to 22%.                                                                                                
   ·    Section  15, the  Department  of  Health  and  Social                                                                   
        Services  subcommittee  added  the  Federal  Medicaid                                                                   
        Assistance Program  (FMAP)  contingency language  for                                                                   
        $37.1 million dollars.                                                                                                  
   ·    Section 16, to  the Department  of Labor  & Workforce                                                                   
        Development, there were no changes.                                                                                     
   ·    Section 17, to the Department of  Military & Veterans                                                                   
        Affairs, there were no changes.                                                                                         
   ·    Section 18, to  the Department of Natural  Resources,                                                                   
        there were no changes.                                                                                                  
   ·    Section  19, to  the  Department  of  Public  Safety,                                                                   
        there were no changes.                                                                                                  
   ·    Section 20, the Department of Revenue,  Section C was                                                                   
        modified, adding  a cap of  $25 million dollars  paid                                                                   
        to the Alaska  Retirement Management (ARM)  Board and                                                                   
        intends payment on additional claims.                                                                                   
   ·    Section 21, to the Office of the  Governor, including                                                                   
        the $24 million dollar fuel contingency;  the trigger                                                                   
        dates were changed.                                                                                                     
   ·    Section 22, to the  University of Alaska,  there were                                                                   
        no changes.                                                                                                             
   ·    Section  23,  to   the  Federal  and   other  program                                                                   
        receipts, there were no changes.                                                                                        
   ·    Section 24,  Fund  Transfer  changes: Item  4(a)  was                                                                   
        changed to  $102 million general  fund dollars;  6(a)                                                                   
        removes the  AHFC dividend;  7(a) ©  removed the  $10                                                                   
        million from  AIDEA;  item C  relates  to Power  Cost                                                                   
        Equalization (PCE), removed  by the Subcommittee  for                                                                   
        $12 million; item  D was modified to  appropriate $25                                                                   
        million from  the  PCE Endowment  Fund  to the  Power                                                                   
        Cost Authority  (PCA)  Capitalization  Fund;  item  N                                                                   
        removed $3 million to the Disaster  Relief Fund; item                                                                   
        S produced $20  million to the  ASLC receipts  to pay                                                                   
        down student  scholarships and  was removed;  item V,                                                                   
        relating  to  Enterprise  Technology  Services  (ETS)                                                                   
        capitalization of $5.3 million was removed                                                                              
  ·    Section 25, to Bond Claims, there were no changes.                                                                       
   ·    Section 26,  to Retained Fees  and Bankcard  Service,                                                                   
        there were no changes.                                                                                                  
   ·    Retirement    for    municipalities    was    removed                                                                   
        (previously Section 22)                                                                                                 
   ·    Section 27,  to Salary &  Benefit Adjustments,  there                                                                   
        were no changes.                                                                                                        
   ·    Section  28,  the  Shared  Taxes  and  Fees  includes                                                                   
        commercial passenger vessel  excise tax  and regional                                                                   
        cruise ship impact funds.                                                                                               
   ·    Section 29, State  debt & other obligations,  Section                                                                   
        G  was  changed  to  coincide   with  the  Governor's                                                                   
        amendment to add  miscellaneous fees of  $1.8 million                                                                   
        dollars; item M was  moved and a $3.4  million dollar                                                                   
        appropriation for the AHFC parking garage was added.                                                                    
   ·    Section 30,  removed items  E  & F  from the  Capital                                                                   
        Budget Request (CBR).                                                                                                   
2:10:00 PM                                                                                                                    
MENTAL HEALTH                                                                                                                 
Ms. Kelly  explained that one  change was made to  the Mental                                                                   
Health Bill, HB 96.  It is customary  for the House to remove                                                                   
one capital  item and the  Senate to  remove the rest  so all                                                                   
items are  subject to the  call of the Conference  Committee.                                                                   
The  item removed  was $650  thousand dollars  in the  Mental                                                                   
Health  Trust   receipts  from  the  Department   of  Natural                                                                   
Resources  Mental Health  Land Trust  Development located  in                                                                   
Section 3.                                                                                                                      
2:10:35 PM                                                                                                                    
Ms. Kelly  spoke to  the unfunded  liability and the  various                                                                   
approaches  proposed to  address the  concern.  Some  reasons                                                                   
for the  liability are  a market  crash, increases  to health                                                                   
costs, increasing number of retirees  and incorrect actuarial                                                                   
The proposed remedies are:                                                                                                      
   ·    SB 141 changed  the program  from Defined  Benefit to                                                                   
        Defined Contribution.                                                                                                   
   ·    The Alaska Retirement  Management (ARM)  Board raised                                                                   
        rates in FY07, the  Teacher Retirement System  (TRS @                                                                   
        26  and  the   Public  Employees  Retirement   System                                                                   
        (PERS)) capped at 5% increase.                                                                                          
   ·    The ARM Board again  raised rates in FY08  - TRS 54%;                                                                   
        PERS = various  (uncapped low  12%, high 184%).   The                                                                   
       State rate was 22.75% in FY07 and 44% in FY08.                                                                           
   ·    The ARM  Board calculated  amounts  needed to  payoff                                                                   
        the  unfunded  liability  in  25   years  with  equal                                                                   
        payments from the established rate.                                                                                     
   ·    The ARM Board  included a  factor in calculating  the                                                                   
        rates to cover a decreasing wage  base of the defined                                                                   
        benefit members TRS 11.77%/PERS 7.25%.                                                                                  
Ms.  Kelly discussed  problems  with the  current  retirement                                                                   
   ·    The school  districts  and  the  University  are  not                                                                   
        competitive when  seeking  federal  and other  grants                                                                   
        due to the escalating retirement costs.                                                                                 
   ·    The Base Student Allocation (BSA)  has been raised in                                                                   
        the last two  years to  pay the retirement  increases                                                                   
        within the  formula causing  the military academy  to                                                                   
        be over-funded because they have  no employees in the                                                                   
        TRS system.  The effect has become  magnified because                                                                   
        they receive seven times the BSA.                                                                                       
   ·    An optional  retirement  program  at  the  University                                                                   
        tied participant retirement deposits  directly to the                                                                   
        ARM Board rate.   The  participants could  receive an                                                                   
        unanticipated  windfall increase  directly  to  their                                                                   
        personal  accounts  as the  ARM  Board  continues  to                                                                   
        increase rates.                                                                                                         
   ·    That rate is so high, it directly impacts services                                                                      
        in the  schools  and  the  municipalities  by  taking                                                                   
        money away from the classroom and  municipal services                                                                   
        in order to payoff the liability.                                                                                       
   ·    Municipality's inability to pay high rates.                                                                             
   ·    PERS is not a cost shared plan and each entity has a                                                                    
        different rate.                                                                                                         
   ·    PERS needs to go to a cost share plan that includes                                                                     
        the entire wage base of the Defined  Benefit (DB) and                                                                   
        Define Contribution (DC)  plan so that only  one rate                                                                   
        is  paid.    Such  action  could   insure  no  hiring                                                                   
        discrimination because  of the  retirement status  of                                                                   
        the employee;  the action  could  also eliminate  the                                                                   
        administrative burden  of  tracking retirement  costs                                                                   
        by employees.                                                                                                           
Ms. Kelly  addressed the  FY08 fixes to  date.  The  Governor                                                                   
proposed to fund  the FY08 TRS and PERS  retirement increases                                                                   
outside   the  education   formula.     The  Governor's   TRS                                                                   
amendments returned  that rate to  26%.  A resolution  by the                                                                   
ARM  Board indicated  that  they will  reduce  rates to  FY06                                                                   
levels  if  the   State  directly  pays  into   the  Unfunded                                                                   
Liability Account  the difference  they would have  collected                                                                   
at the established FY08 rates.                                                                                                  
Since the beginning  of Session, the House  Finance Committee                                                                   
(HFC)  has  been  exploring  with   the  Legislative  Finance                                                                   
Division (LFD), approaches that  could be put in place to fix                                                                   
the issue  while at  the same  time, addressing the  unfunded                                                                   
liability.  The HFC "fix" requires three pieces.                                                                                
        o Fixing  the  appropriation   bill  to  reflect  the                                                                   
          appropriate amount of money necessary to fund                                                                         
          retirement issues this year.                                                                                          
        o Amending  the  statute to  makes  the  PERS a  cost                                                                   
          share system and set a base rate in statute for                                                                       
          the rate that will be paid by participants.                                                                           
        o Make  PERS/TRS  a  blended system,  a  system  that                                                                   
          includes both DB and DC employees at one rate.                                                                        
The  committee  substitute  addresses  only  one  piece,  the                                                                   
appropriation  in Section 14,  TRS @  $269 million  dollars /                                                                   
PERS @ $180 million dollars.                                                                                                    
2:17:51 PM                                                                                                                    
Ms. Kelly discussed  the fixes in the work  draft including a                                                                   
TRS rate  of 12.56%,  funding the  remaining portion  outside                                                                   
the formula.  The  draft calculates the PERS rate  at 22% for                                                                   
municipalities  with  the  State  picking  up  the  remaining                                                                   
difference.  The  rate used for the PERS  system calculations                                                                   
is 22%.  That rate was selected because:                                                                                        
   ·    It is close to the State's rate of 22.75%; and                                                                          
   ·    It balances the municipality's needs with the                                                                           
        State's ability  to pay, paying  $65 million  dollars                                                                   
        of the municipality's request of  $78 million dollars                                                                   
        this year.  The fix would be permanent  and would not                                                                   
        need to be considered each year.                                                                                        
Ms. Kelly  noted the second piece  of the bill,  discussed in                                                                   
the  Senate  Finance  Committee (SFC),  would  be  introduced                                                                   
soon.   That legislation  changes  the PERS  to a cost  share                                                                   
system, not  including the full  wage base with one  rate for                                                                   
all participants.  Such amendments will need to be added.                                                                       
Ms. Kelly identified who wins with the proposed system:                                                                         
   ·    The State, as the unfunded liability is being paid                                                                      
        down and deposits for  the TRS would be made  in July                                                                   
        instead of over  a 12 month  period.  Everyone  would                                                                   
        pay the  same rate.   The military  academy would  be                                                                   
        funded  more currently.    The  calculation  for  the                                                                   
        employee retirement  would  be  a fixed  rate  versus                                                                   
        calculating by  individual employees.   The  unfunded                                                                   
        liability would be paid off in 25 years.                                                                                
   ·    The school districts, as the BSA was calculated                                                                         
        according to  a district's  need,  would not  include                                                                   
        paying off an unfunded liability.                                                                                       
   ·    The municipalities, as they would acquire a rate                                                                        
        that they could depend  upon and afford;  there would                                                                   
        be no hiring discrimination.                                                                                            
Ms. Kelly recapped important parts of her presentation:                                                                         
   ·    Pass the appropriation draft with retirement fixes                                                                      
   ·    Pass the Governor's anticipated bill, implementing a                                                                    
        cost share system in  the PERS and amending  the bill                                                                   
        to include the PERS/TRS entire salary base; and the                                                                     
   ·    ARM Board dropping rates prior to June 30, 2007.                                                                        
2:18:37 PM                                                                                                                    
Representative  Nelson asked what  DCDB employees were.   Ms.                                                                   
Kelly explained that  DC is Defined Contribution  and DB as a                                                                   
Defined Benefit.                                                                                                                
2:19:15 PM                                                                                                                    
Co-Chair  Chenault  expressed   his  gratitude  to  the  work                                                                   
produced by  the subcommittee  chairmen and the  subcommittee                                                                   
process.  He highlighted the schedule  for the upcoming week.                                                                   
Amendments will be addressed on March 21-23.                                                                                    
HB 95 and HB 96 were HELD in Committee for further                                                                              
2:22:44 PM                                                                                                                    
The meeting was adjourned at 2:22 P.M.                                                                                          

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