Legislature(2021 - 2022)ADAMS 519
04/23/2021 09:00 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB81 | |
| SB19 | |
| HB55 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 69 | TELECONFERENCED | |
| += | HB 71 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 19 | TELECONFERENCED | |
| += | HB 81 | TELECONFERENCED | |
| += | HB 55 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
April 23, 2021
9:05 a.m.
9:05:56 AM
CALL TO ORDER
Co-Chair Merrick called the House Finance Committee meeting
to order at 9:05 a.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Kelly Merrick, Co-Chair
Representative Dan Ortiz, Vice-Chair
Representative Ben Carpenter
Representative Bryce Edgmon
Representative DeLena Johnson
Representative Andy Josephson
Representative Bart LeBon
Representative Sara Rasmussen
Representative Steve Thompson
MEMBERS ABSENT
Representative Adam Wool
ALSO PRESENT
Elise Sorum-Birk, Staff, Representative Josephson.
PRESENT VIA TELECONFERENCE
Ryan Fitzpatrick, Commercial Analyst, Division of Oil and
Gas, Department of Natural Resources; Jhonny Meza,
Commercial Manager, Division of Oil and Gas, Department of
Natural Resources; Jim Slater, Self, Pelican; Eric Gurly,
Executive Director, Access Alaska, Anchorage; Paul Miranda,
President, Alaska Professional Firefighters Association.
SUMMARY
HB 55 PEACE OFFICER/FIREFIGHTER RETIRE BENEFITS
HB 55 was HEARD and HELD in committee for further
consideration.
HB 81 OIL/GAS LEASE:DNR MODIFY NET PROFIT SHARE
HB 81 was HEARD and HELD in committee for further
consideration.
SB 19 EXTEND SPECIAL EDUCATION SERVICE AGENCY
CSSB 19(FIN) was REPORTED out of committee with a
"do pass" recommendation and with one previously
published fiscal note: FN2 (EED).
Co-Chair Merrick reviewed the agenda for the meeting.
HOUSE BILL NO. 81
"An Act authorizing the commissioner of natural
resources to modify a net profit share lease."
9:06:35 AM
[Secretary Note: A prior meeting on HB 81 was held on April
22, 2021, at 9:00 A.M.]
RYAN FITZPATRICK, COMMERCIAL ANALYST, DIVISION OF OIL AND
GAS, DEPARTMENT OF NATURAL RESOURCES (via teleconference),
continued with the PowerPoint (copy on file): "HB 81 - Net
Profit Share and Royalty Modifications on Oil and Gas
Leases," beginning on slide 21. He discussed Slide 21
titled Eligible Scenarios for Modification:
• Current statute for royalty modification; and
• HB81 would allow net profit share modifications in
these scenarios as well.
A. New Production: If the development of a new
field or pool would not be economic without
modification, so long as the field or pool is
sufficiently delineated. AS 38.05.180(j)(1)(A)
B. Extend Production: To prolong the economic
life of a field or pool when rising per-barrel
costs (due to declining production or otherwise)
would make continuing production no longer
economic without modification. AS
38.05.180(j)(1)(B)
C. Restore Production: To reestablish production
of shut-in oil or gas that would otherwise not be
economically feasible without modification. AS
38.05.180(j)(1)(C)
• New scenario under HB81 proposal
• Applies to net profit share modifications
D. Incremental Production: If incremental
production from producing pools requiring
incremental capital expenditures is uneconomic in
the absence of modification.
Examples: Expansion of existing pools, additional
drilling pads, enhanced oil recovery projects,
etc.
Mr. Fitzpatrick expounded that the fourth scenario was
another end of field life modification. The scenario
applied to fields where additional capital expenditure was
required to increase production and the capital investment
would be uneconomic without the modification. It was very
similar to the second scenario but instead of increasing
operating costs it was an increase in capital expenditures
necessary to increase the life of the field. He delineated
that the modification was only allowed for the net profit
share rates and the provision was added in the House
Resources Committee version committee substitute (CS).
Co-Chair Merrick indicated Representative Rasmussen and
Representative Carpenter had joined the meeting.
9:10:02 AM
Representative Johnson wondered how many fields the
legislation would apply to. Mr. Fitzpatrick referred to
slide 8 that listed the fields that currently had net
profit share leases within the unit. He listed the fields
as follows: Collville River, Oooguruk, Nikaitchug, Kuparuk
River, Duck Island, Point Thompson, and Milne Point. He
noted that from a straight eligibility standpoint anyone of
the fields could potentially apply for a modification. He
expounded that most of the leases were currently in
production already and likely would not see a modification
for new production. He deduced that applications for
modification would likely come from fields at the end of
their production life for some of the smaller fields.
Representative Johnson understood Mr. Fitzpatrick's
response. She inquired whether there were fields the
department was aware of that would likely come online
within 3 years that were not end of life fields. Mr.
Fitzpatrick thought that she was referring to Pikka and
Nikaitchug North fields. He suggested that there might be
an application for a royalty modification but not a net
profit modification. He noted that Nikaitchug North was a
federal field and decisions regarding royalties were made
on a federal level. He speculated that under the fourth
scenario some Milne Point and Duck Island fields might
apply.
9:14:39 AM
Mr. Fitzpatrick moved to slide 22 titled Eligible
Scenarios for Modification. He deferred to his colleague
to describe the modeling work on the following two slides.
9:15:04 AM
JHONNY MEZA, COMMERCIAL MANAGER, DIVISION OF OIL AND GAS,
DEPARTMENT OF NATURAL RESOURCES (via teleconference),
indicated that the slides showed a graphic presentation of
eligibility for the 4 modification scenarios. He
highlighted that the beige colored section of the graphs
represented development costs and the investment and
operating costs were depicted in light gray. In addition,
revenue was portrayed as triangles and operating profits in
circles associated with a hypothetical project. The
royalties to the state were portrayed in dark gray, net
profit share in light orange, and a proxy for production
tax was shown in blue. He noted that proxy was based on
the field level versus the production tax that was accessed
on the taxpayer level. In the case of new production shown
on the left graph on the slide, it was assumed in year
zero, the lease holder had not yet decided whether to
invest and obtain production from the oil and gas pool. If
it was determined to be uneconomic unless modification of
royalty or net profit share was applied the resources would
remain stranded and potential state revenues would not
occur. He turned to the second scenario [extended
production] in year 17, after production for 16 years it
was determined that continued production would translate
into operating losses, modification of reduction of royalty
or net profit shares could prevent the abandonment of the
field by year 18 and ensure production and state revenue
would continue. However, when evaluating the production in
future years past performance of the field did not
influence the lease holder regarding whether to continue
production. He turned to slide 23 with the same title as
slide 22 and continued with the remaining two scenarios.
9:18:14 AM
Mr. Meza continued with the third scenario [restore
production] in year 21 where production from the pool had
ceased. However, with a modification, production could
resume if it was technically feasible. He examined the
graph on the right depicting the fourth scenario from the
original version of the bill. He explained that HB 81
created a fourth scenario. The lease was in year 15 and the
lease holder was considering a capital investment to a
producing field to access incremental production that would
extend the life of the field, stem or reverse the decline
rate through enhanced recovery program or drilling outside
the boundaries of a known reservoir. He qualified that
without modification of the royalty or net profit share the
capital investment might not occur. He reiterated that the
committee substitute only allowed for modification of the
net profit share and excluded royalty modification. He
pointed out that the lease holder would not qualify for the
first three scenarios under the royalty modification
statute. Scenario A was disqualified because the pool was
already producing. He added that scenario B would not
qualify because the lease holder had not yet incurred the
capital expenditures and could not yet claim that per
barrel costs were increasing to the point of abandonment.
He restated that the original version of HB 81 proposed
that both royalty and net profit share could be modified.
9:20:29 AM
Representative Josephson cited the CS and asked if the
original bill would have allowed for royalty adjustment for
Prudhoe Bay itself. Mr. Meza responded that the existing
statute allowed for the modification of royalty for any
lease that had a royalty component, for every state oil and
gas lease. The applicant needed to make a clear and
convincing case that the modification was warranted from
an economic standpoint in order for the department to make
any modifications. Representative Josephson understood that
the amendment reflected on page 2 of the CS, restricted
royalty modification that was allowed under the original
bill. He asked whether he was correct.
Mr. Fitzpatrick responded in the affirmative. The original
bill mimicked the statutory language that applied to all
the first three scenarios. He reiterated that the CS pulled
out the royalty modification in scenario 4 and only allowed
for net profit share modification.
9:23:07 AM
Mr. Fitzpatrick advanced to slide 24 titled Decision-
Making Process.
A. HB 81 does not propose to change the modification
process.
B. A producer applying for a royalty modification must
provide a clear and convincing showing that they
meet the statutory requirements.
? A higher standard of proof than required for most
other DNR applications.
? Applicants required to provide abundant evidence
to justify any request for relief.
C. DNR may require (for .180(j)(1)(A)) or request (for
.180(j)(1)(B)(C)) that producers pay up to
$150,000 per application for consulting work to
support DNR's evaluation of the application.
D. Publication of Best Interest Finding and offer
presentation to Legislature (AS 38.05.180(j)(9)
(10)).
E. If granted, modifications are not transferrable
without the authorization of the Commissioner. (AS
38.05.180(j)(5)).
Mr. Fitzpatrick emphasized that the modification
application process was held to a higher standard and was
unchanged in HB 81. The clear and convincing standard
applied to both types of modifications - royalty
modifications and net profit sharing modification. He
elaborated that the external consulting fee allowed the
Department of Natural Resources (DNR) to obtain consulting
services for scenarios of understaffing due to vacancies or
lacking the necessary expertise to review an application.
The external consultant participated in the review process
for both types of modifications. He furthered that after a
modification review, the department published a best
interest finding that contained the justification and
decision and was subject to a public comment period. During
the comment period, DNR was required to testify before the
legislature to discuss the decision. The requirement
remained unchanged in statute. Finally, if a modification
was granted under current statute, the modification was not
transferable without prior written approval by the
commissioner of DNR, which applied to both modifications.
9:28:53 AM
Mr. Fitzpatrick indicated that the final portion of the
presentation contained tables that were side-by-side
comparisons of the original version of HB 81 versus the
committee substitute beginning on slide 26 titled HB 81
vs. CS for HB 81. He offered that the original bill and CS
both allowed for modification of net profit share under
existing eligibility scenarios for royalty modification and
clarified that the condition of prior production refers to
commercial production. He noted that the language in the CS
that created a new eligibility scenario for modification
when additional capital expenditures were needed was
refined by Legislative Legal Services. He reminded the
committee that the CS restricted applicability of the new
scenario only to net profit share modification.
9:30:13 AM
Mr. Fitzpatrick briefly described slide 27. He commented
that language included in the CS regarding the modification
of the net profit share provided a floor of 10 percent, the
modification could not be less than 10 percent. There were
additional requirements for the new scenario. He explained
that the capital expenditure had to be made by the lease
holder or the modification would lapse and the commissioner
of DNR had to approve the additional capital investments
based on the need to maximize economic production. He noted
that the conditions were typical for a DNR modification. He
referenced the most recent modification from 2014 for the
Oooguruk formation. He delineated that one condition lapsed
the modification if the operator did not make the
investment by a certain time. In the case, the modification
lapsed and voided because the investment was not made. He
believed that the conditions encapsulated best practices.
He added that Legislative Legal also suggested other
conforming language changes.
9:32:43 AM
Co-Chair Merrick asked for the justification for removing
the royalty modification. Mr. Fitzpatrick responded that
there were some concerns about extending royalty
modifications to larger fields. He communicated that the
department viewed the royalty modification useful but
understood it was a matter of legislative policy.
9:33:47 AM
Representative Josephson suggested that because the changes
were historically infrequent, he wondered why the
legislature would not be given the opportunity to approve
modifications. He noted that a modification was granted for
the North Star unit via legislation in 1996. He relayed
that the legislation moved quickly through the legislature
and doubted delay would be a problem. He wondered what the
department's position might be. Mr. Fitzpatrick was unable
to speak to the departments position. He acknowledged that
the legislature had approved modifications in the past. The
current modification statute allowing the commissioner to
approve modifications was in place for the previous 26
years. He would follow up on the representative's question.
Representative Josephson would appreciate the information.
Representative Rasmussen did not believe the legislature
would be able to move quickly on any legislation under the
current political environment.
Mr. Fitzpatrick thanked the committee for hearing the bill.
Co-Chair Merrick set the bill aside.
HB 81 was HEARD and HELD in committee for further
consideration.
CS FOR SENATE BILL NO. 19(FIN)
"An Act relating to allocations for the special
education service agency; extending the special
education service agency; and providing for an
effective date."
9:37:10 AM
Co-Chair Merrick indicated that SB 19 was last heard in
committee on April 19, 2021.
Co-Chair Merrick OPENED public testimony.
9:37:35 AM
JIM SLATER, SELF, PELICAN (via teleconference), indicated
that one of his children had autism. He shared that he
served as president of the Pelican City School Board, which
was one of the smallest districts in the state. He
explained that there were no specialists employed by the
school district for autism or other disabilities. He
detailed that prior to the creation of Special Education
Service Agency (SESA), the district only had access to
coordinators that facilitated the development of
Individualized Educational Plans (IEP) and testers who set
benchmarks. There was no regular input from specialists
that could develop and modify curriculums. He reported that
SESA provided crucial input for IEPs. In addition, SESA
also provided parents and teachers ongoing sources of
information regarding progress, further modifications, and
materials from their lending library. He appreciated SESAs
extra support of his son during the pandemic while school
was closed. He shared that a staffer from SESA along with
his wife instructed the child for a short period each day.
The son would continue his lesson for the remainder of the
day under SESAs guidance. His son advanced several grade
levels in math in a sixth month period and currently his
son was advancing in reading under further assistance from
SESA. The model of regular remote engagement was extremely
effective. He clearly believed that without SESA, his son
would not receive the education he needed. He believed that
to be true of all the children SESA assisted.
Vice-Chair Ortiz had and inquiry of Mr. Slater who dropped
off the line.
9:41:44 AM
ERIC GURLY, EXECUTIVE DIRECTOR, ACCESS ALASKA, ANCHORAGE
(via teleconference), related that the agency supported
center for independent living philosophies for persons with
disabilities and seniors via grants and Medicaid waivers
for consumer directed personal care assistance. The agency
was working with youth across the state and partnered with
SESA. He acknowledged that rural communities had limited
options in performing such services as transitional
services to help youth seeking employment. His organization
was strongly supported by SESA who provided collaboration
and training for organizations like his who provided
essential support for services. He urged members to
support the bill and SESA.
9:43:44 AM
Mr. Slater was back online.
Vice-Chair Ortiz restated his question. He inquired if he
was correct that there were no other resources for IEP
services in his district besides SESA. Mr. Slater answered
in the negative. He related that Pelican was too small of a
school district to have a special education teacher. The
school district contracted with an agency (facilitators)
that helped develop the IEP through input from SESA,
teacher, and parents. The IEP was executed with the help of
SESA on a regular basis.
Vice-Chair Ortiz clarified that SESA played a major role in
consulting with the organization that was contracted to
develop the IEP. Mr. Slater responded, "That's correct." He
furthered that the contractor filled out the paperwork and
wrote the IEP under the guidance of the school district and
SESA.
9:46:51 AM
Representative Carpenter asked if he had heard Mr. Slater
correctly that his sons performance outpaced the
expectations during the COVID crisis. Mr. Slater responded
in the affirmative. Representative Carpenter wondered how
the Pelican school district continued to provide education
during COVID. Mr. Slater replied that in March 2020, the
school district moved to an online curriculum. He
elucidated that prior to COVID input was provided on an
irregular basis. When the school shut down, the school did
not have anyone to work with his son. SESA stepped in
meeting with his son Jim, every day. During the time, his
son made huge gains in 6 months moving from a kindergarten
level of math to a third grade level. The model had such
success, it was continued with regular school back in
session. He specified that SESA was engaged on a weekly
basis with Jims teacher and contact was much more regular.
The IEP stayed on track. The model had proven very
effective. Representative Carpenter asked if the model
included a daily 30 minute meeting from SESA with
instruction primarily carried out by his mother. Mr. Slater
responded in the affirmative. He added that currently the
interaction was continued with Jims teacher and his
success had continued in the in-school model.
Vice-Chair Ortiz clarified that if he was really talking
about a paraprofessional rather than a teacher related to
Jims direct instruction. Mr. Slater answered in the
affirmative.
9:50:28 AM
Co-Chair Merrick CLOSED public testimony. She had not
received any amendments to the bill.
Co-Chair Foster MOVED to report CSSB 19(FIN) out of
Committee with individual recommendations and the
accompanying fiscal note.
CSSB 19(FIN) was REPORTED out of committee with a "do pass"
recommendation and with one previously published fiscal
note: FN2 (EED).
9:52:31 AM
AT EASE
9:54:36 AM
RECONVENED
HOUSE BILL NO. 55
"An Act relating to participation of certain peace
officers and firefighters in the defined benefit and
defined contribution plans of the Public Employees'
Retirement System of Alaska; relating to eligibility
of peace officers and firefighters for medical,
disability, and death benefits; relating to liability
of the Public Employees' Retirement System of Alaska;
and providing for an effective date."
9:54:45 AM
Co-Chair Merrick reported that HB 55 was previously heard
in committee on April 21, 2021.
REPRESENTATIVE ANDY JOSEPHSON, SPONSOR, commented that
there was some discussion about contribution levels. He
reminded committee members that under Tier 4, employees had
a contribution level of about 8 percent and under HB 55
contributions would be 8 to 10 percent. He considered that
further skin in the game. He referred to the pie chart on
slide 10 of the PowerPoint [titled HB 55] (copy on file)
presented at the prior meeting and noted it was an
excellent graphic depiction of the contribution breakdown
of "where the contributions came from and where they went."
Co-Chair Merrick moved to invited testimony.
9:56:34 AM
PAUL MIRANDA, PRESIDENT, ALASKA PROFESSIONAL FIREFIGHTERS'
ASSOCIATION (via teleconference), began the PowerPoint
Presentation titled Costs of Maintaining The Status Quo"
(copy on file). He shared that the purpose of his
presentation was to illustrate that Alaska was facing a
public safety recruitment and retention crisis and to
demonstrate that there was a real cost to maintaining the
status quo.
9:57:59 AM
Mr. Miranda began with slide 2 titled Unintended
Consequences of Tier IV for Public Safety:"
? Recruitment Difficulties
? Retention Costs
? Workers Compensation Costs
? Unforeseen Costs
Mr. Miranda elucidated that Alaska can no longer compete
with the lower 48 when it comes to recruitment of public
safety officers. The state held a clear disadvantage
compared to what other states offered for retirement
benefits. He stressed that police officers and paramedics
were in high demand. He noted that no other state offered a
similar retirement plan as Alaskas.
9:59:27 AM
Mr. Miranda turned to slide 3 titled Recruitment
Difficulties
? "Alaska cannot compete with agencies offering
defined benefit plans. This has left us with vacancies
in multiple academies as applicants decide to pursue
careers elsewhere." APD Police Chief Justin Doll
? "The number of individuals wanting to work at the
Fairbanks Fire Department has declined drastically
over the last several years. FFD Fire Chief Jim
Styers
? Our firefighter alumni populate most Alaska career
fire departments. The 42 young men and women in
my program are far more aware of financial planning
and retirement concerns than I was at their age. It
is troubling that the majority of them are testing and
interviewing for jobs in other states."
- UFD Fire Chief Doug Schrage
10:00:04 AM
Mr. Miranda turned to slide 4 titled Retention:
? "? the inability to provide a defined benefit
retirement system have placed the department at
critically low staffing levels."
DPS Recruitment and Retention Plan Overview 2018-
2023
? "We are seeing our highly trained, qualified, and
experienced officers leave APD to work out of state
for other law enforcement agencies offering
competitive defined benefit retirement systems." APD
Police Chief Justin Doll
"The turnover of career staff appears to be higher?
compared with other clients. Turnover not only has a
financial effect on the department, but it also loses
valuable experience. " Fitch & Associates consultant
report Capital City Fire and Rescue
Mr. Miranda highlighted the retention issues. He pointed
out that the fiscal analysis by the state's actuary for HB
79 [HB 79-PEACE OFFICER/FIREFIGHTER RETIRE BENEFITS 2019-
2020] from the prior session, which was virtually
identical to HB 55, assumed increased retention.
10:00:53 AM
Mr. Miranda advanced to slide 5 titled Worker's
Compensation Costs:
? Firefighters particularly prone to musculoskeletal
disorders (MSDs).
? "FFs age 55 and older have an MSD injury rate that
is more than double that of youngest FFs, and more
than ten times greater than that of private-sector
workers of same age.
? "It is apparent that older firefighters are
associated with much higher rates of reported
workplace injuries than both younger firefighters and
private sector workers.
? "This is consistent with the notion that the
rigorous physical demands of firefighting subject them
to trauma throughout their working lives, making them
more subject to MSDs in later years.
*Rand Corporation study on California fire fighters'
workers compensation injuries.
Mr. Miranda discussed that Tier IV had been in place for 15
years and the state had yet to have a 20 to 25 year career
member retire. He relayed that three independent reviews
from the Department of Administration (DOA), Deven
Mitchell, Executive Director, Alaska Municipal Bond Bank
Authority, Department of Revenue, and William B. Fornia,
Fellow of the Society of Actuaries (FSA), President
found that most of Alaska's public safety employees would
lack money to retire after a 30 year career and most were
not covered by social security. The average hiring age was
31, as the workforce aged without enough financial security
to retire, the state would expect to see increased workers
compensation costs due to the physical nature of the job
and because older workers sustain more injuries.
10:04:06 AM
Mr. Miranda moved to slide 6 titled Unforeseen Costs:
? Increase overtime costs due to inadequate staffing
? Increased training costs
? Loss of operational capabilities
? Loss of experience and future leadership
? Rise in organizational stress levels
Mr. Miranda returned to slide 5 and added that the mental
tolls of the job build over time and employees should be
able to leave the job when necessary. He discussed slide 6.
10:04:54 AM
Mr. Miranda continued to slide 7: "Recruitment and
Retention Problems Will Only Increase:"
? Current recruitment & retention difficulties
highlighted by DPS, DOC, and chief Officers from
across the state are occurring with 40-50% of
workforce in DB system
? Tier 4 currently makes up 50-60% of public safety
workforce
? The problems will be magnified as the Tier 4
workforce population grows
? A 100% portable public safety workforce is a
frightening thought for chief Officers around the
state
Mr. Miranda relayed that both labor and management were
united in finding a solution to issues resulting from Tier
IV. The intensifying problems troubled police chiefs
throughout the state.
10:06:12 AM
Mr. Miranda reviewed the costs of remaining at the status
quo level on slide 8 [untitled]:
3,400 = Number of public safety employees in Alaska
$120,000 = Average training cost for public safety
employees
? Some agencies report costs as high as $240,000
(Airport Police & Fire)
10:07:22 AM
Mr. Miranda advanced to slide 9 titled What is the fiscal
note for maintaining the status quo:
? DPS & DOC have testified to the Legislature of non-
retirement separations greater than 6%
? This is at a time when Tier 4 makes up less than 60%
of overall public safety workforce
? Here we will examine costs of Alaska losing 1%, 2%
and 3% of a Tier 4 public safety workforce each year
? We will use a conservative training cost of $120,000
, not increased for inflation over a 20-year period
Mr. Miranda moved to slide 10 titled "1 Percent of
Workforce Leaving:" The slide reflected the costs of
training and recruitment and the costs of one percent of
public safety officers leaving the state.
? 3,400 x 0.01 = 34 employees
? 34 x $120,000 = $4,080,000 cost per year
? 5 x $4,080,000 = $20,400,000 5-year cost
? 20 x $4,080,000 = $81,600,000 20-year cost
10:09:35 AM
Mr. Miranda continued to slide 11 titled "2 Percent of
Workforce Leaving:"
3,400 x 0.02 = 68 employees
? 68 x $120,000 = $8,160,000 cost per year
? 5 x $8,160,000 = $40,800,000 5-year cost
? 20 x $8,160,000 = $160,200,000 20-year cost
10:09:48 AM
Mr. Miranda looked at Slide 12 titled 3 Percent of
Workforce Leaving:
? 3,400 x 0.03 = 102 employees
? 102 x $120,000 = $12,240,000 cost per year
? 5 x $12,240,000 = $61,200,000 5-year cost
20 x $12,240,000 = $244,800,000 20-year cost
10:10:19 AM
Mr. Miranda reiterated that some agencies estimated
significantly higher pre-retirement separations. He
highlighted slide 13 titled Conclusions:
? These costs do not fully represent the problems that
will result from non-retirement separation of public
safety employees, it is only one aspect.
These costs far outweigh the cost of HB 55.
? Other jurisdictions across the country have restored
DB systems after experience such as this.
Mr. Miranda indicated that even a 1 percent improvement
from adoption of the bill more than paid for its cost and
the costs of officers leaving the state was much greater.
He related that there were several other states that had
returned to a defined benefit system after experiencing a
similar situation as Alaska.
10:11:36 AM
Mr. Miranda explained that HB 55 proposed a shared risk
hybrid retirement system for public safety employees. He
highlighted a few of the provisions in the bill. He pointed
out that the bill dramatically decreased the benefit from
the legacy DB tiers. The plan did not provide retiree
medical coverage that accounted for 36 percent of the
liability of the defined benefit tiers. The bill
established a minimum retirement age of 55 that did not
exist in previous tiers. He elaborated that a provision
utilized a high 5-year average for benefit calculations
rather than a high 3-year. The provisions resulted in
significant benefit reductions. Additionally, a portion of
the retirees Post Retirement Pension Adjustments (PRPA)
inflation proofing benefit could be withheld if the plans
funding level decreased. It was an incredibly powerful
lever that was employed in Wisconsin during the economic
downturn in 2008; currently the Wisconsin plan is fully
funded. The bill allowed for employees to contribute more
and retirees to receive less if the funding level dropped
below 90 percent. He reported that 80 percent was
considered a healthy standard for retirement plans. He
concluded that the risk was shared among employees,
retirees, and employers together so that no one group was
left holding all the risk.
10:13:35 AM
Mr. Miranda finished his presentation on slide 15 titled
Conclusion:
We have a shared interest in ensuring quality public
servants fill the ranks of Alaska's public safety
agencies.
Adopting an adequate retirement plan with reasonable
costs, fair benefits, and shared risk will help us in
this mission.
10:14:11 AM
Representative LeBon thanked Mr. Miranda for his
presentation. He wondered how portable the plan would be
for an employee to move to another state. Mr. Miranda
responded that the allowance for portability was the
problem the state was currently experiencing. In the
current system, vested employees could move away after 5
years and carry their account balances with them. Some out-
of-state agencies allowed the employee to buy time in its
system. He voiced that the possibility did not exist in HB
55. The qualifications for retirement in HB 55 was 55 years
old or 20 years of service or 60 years of age if vested
with less than 20 years of service. Someone could leave
once they were vested but could not receive any benefit
from the plan until age 60. There was a high incentive for
employees to stay and invest in the system. He indicated
that Chief Schrage, Fire Chief, University of Alaska,
Fairbanks, testified that under the defined benefit plan,
it was rare for an individual to quit before working a full
career and presently, it was a common occurrence under Tier
IV.
10:16:48 AM
Representative LeBon supposed that someone hired under a DB
plan wanted to reach vestment. He deduced that if a 25 year
old was hired, worked for 5 years then moved, they would
not have access to their money for 30 years. He wondered
whether his statement was correct. Mr. Miranda responded in
the affirmative. He added that at age 60, the individual
would only receive 10 percent of their average salary.
Representative LeBon asked whether there would be a buy in
factor if a person were to change over from Tier IV. Mr.
Miranda replied in the affirmative. He indicated that there
was a buy-in and the buy-in amount would be calculated by
an actuary. Current employees could choose to remain in
Tier IV or buy-in to the new tier.
10:19:33 AM
Representative LeBon suggested that Mr. Miranda would find
out how many employees would want to switch from Tier IV to
the new plan. He wondered if it was a concern that some
would take their accrued benefits under Tier IV after
vestment and leave and not join the new defined benefit
(DB) plan. Mr. Miranda speculated that most individuals in
Tier IV in the public safety group would exercise the
option to join the new tier. There were many advantages to
a DB plan.
Representative Josephson interjected that Section 5 of the
legislation provided for a 90 day period for current
employees to make the election. The bill was identical to
what the prior bill offered on the same subject. The
defined contribution employee would likely find that their
accrued contribution would fully qualify them for the new
plan. Representative LeBon was surprised that the average
age of public safety professionals was 31. He suggested
that the University of Alaska campus had a very highly
rated fire management program. He wondered whether students
graduating from the program who chose to work for an
Alaskan fire department would automatically be entered into
the new DB plan if adopted. He asked if the Tier IV system
would be voided. Representative Josephson responded in the
affirmative. He explained that a new employee would fall
under the new Tier V. Representative LeBon reasoned that
only those already in Tier IV could remain in Tier IV.
Representative Josephson replied in the affirmative.
Vice-Chair Ortiz understood that HB 55 continued the Tier
IV medical plan and relied on the Health Reimbursement
Arrangement (HRA) to cover premiums from retirement until
the retiree was Medicaid eligible. He asked if the health
insurance portion of the plan was similar to and as equally
competitive as other states who returned to a DB plan.
Representative Josephson deferred to Mr. Miranda.
10:26:05 AM
Mr. Miranda responded in the affirmative. He relayed that
many of the plans across the nation were similar to the
medical portion of the HB 55 plan. He was certain that the
Washington state plans retiree health plan was similar.
Vice-Chair Ortiz understood that the person under Tier V
would be responsible for 100 percent of the medical
insurance premium upon retirement and 20 percent
thereafter. He inquired whether he was correct. Mr. Miranda
answered that it was correct that the TIER V plan had the
same medical plan as the Tier IV medical plan. He explained
that the plans utilized a health reimbursement arrangement,
which was an account in which 3 percent of the average Tier
IV employees' salaries were deposited. The employees, at
retirement, would have access to the lump sum of money to
purchase coverage until Medicare age. Once on Medicare,
there was cost sharing based on years of service.
10:28:48 AM
Representative Thompson asked about an actuarial analysis.
He wondered when it would be available.
10:29:04 AM
ELISE SORUM-BIRK, STAFF, REPRESENTATIVE JOSEPHSON, answered
that the Division of Retirement and Benefits was in the
process of updating the actuarial analysis. She had
included the previous actuarial analysis in the members
files [A letter from Buck Consulting dated February 29,2020
(copy on file)]. She did not think the updated actuarial
analysis would be much different.
10:29:50 AM
Co-Chair Merrick indicated the committee was waiting on the
committee substitutes for the operating budget bills. She
recessed the meeting to the call of the chair. [The meeting
never reconvened.]
ADJOURNMENT
10:30:26 AM
The meeting was adjourned at 10:30 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 55 Status Quo Costs H FIN Miranda 4.23.21.pdf |
HFIN 4/23/2021 9:00:00 AM |
HB 55 |