Legislature(2025 - 2026)ADAMS 519
04/02/2025 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: Tiers & Unfunded Liability | |
| HB53 || HB55 | |
| Amendments | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 78 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| += | HB 53 | TELECONFERENCED | |
| += | HB 55 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
April 2, 2025
1:37 p.m.
1:37:26 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 1:37 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Andy Josephson, Co-Chair
Representative Calvin Schrage, Co-Chair
Representative Jamie Allard
Representative Jeremy Bynum
Representative Alyse Galvin
Representative Sara Hannan
Representative Nellie Unangiq Jimmie
Representative DeLena Johnson
Representative Will Stapp
Representative Frank Tomaszewski
MEMBERS ABSENT
None
ALSO PRESENT
Kathy Lea, Director, Division of Retirement and Benefits,
Department of Administration; Alexei Painter, Director,
Legislative Finance Division; Representative Chuck Kopp;
Representative Bill Elam; Representative Julie Coulombe;
Representative Rebecca Himschoot.
PRESENT VIA TELECONFERENCE
David Kershner, Actuary, Arthur J. Gallagher and Company,
South Carolina.
SUMMARY
PRESENTATION: TIERS & UNFUNDED LIABILITY
HB 53 APPROP: OPERATING BUDGET; CAP; SUPP
HB 53 was HEARD and HELD in committee for further
consideration.
HB 55 APPROP: MENTAL HEALTH BUDGET
HB 55 was HEARD and HELD in committee for further
consideration.
HB 78 RETIREMENT SYSTEMS; DEFINED BENEFIT OPT.
HB 78 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster reviewed the meeting agenda.
HOUSE BILL NO. 78
"An Act relating to the Public Employees' Retirement
System of Alaska and the teachers' retirement system;
providing certain employees an opportunity to choose
between the defined benefit and defined contribution
plans of the Public Employees' Retirement System of
Alaska and the teachers' retirement system; and
providing for an effective date."
^PRESENTATION: TIERS & UNFUNDED LIABILITY
1:38:31 PM
AT EASE
1:38:55 PM
RECONVENED
Co-Chair Foster noted that the bill would be taken up first
followed by the operating budget.
Co-Chair Josephson confirmed the committee would continue
with the operating budget after HB 78.
1:39:30 PM
KATHY LEA, DIRECTOR, DIVISION OF RETIREMENT AND BENEFITS,
DEPARTMENT OF ADMINISTRATION, introduced the PowerPoint
presentation, "Defined Benefit Versus Defined Contribution
Comparison" dated April l2, 2025 (copy on file). She
explained that the first 15 pages of the presentation were
an overview of a presentation provided earlier in session.
She would later turn the presentation over to actuary David
Kershner to discuss unfunded liability.
Ms. Lea continued to slide 2 and highlighted the purpose of
the Public Employees' Retirement System (PERS) and
Teachers' Retirement System (TRS) plans to attract and
retain qualified personnel. She noted that the purpose of
the plan for TRS was repealed in 2005; therefore, the
language only currently applied to defined benefit (DB)
participants. Slide 3 showed the chronology of the PERS and
TRS systems including DB tiers and the defined contribution
(DC) tier. She began with DB tiers and detailed that PERS
was established in 1961, Tier 2 was established in 1986,
Tier 3 in 1996. The DC tier was established in July of
2006. She detailed that TRS was established in 1945, Tier 2
was established in 1990, and the DC tier was established in
July 2006.
MS. Lea continued to slide 4 and gave an overview of PERS
Tier 1:
• Vesting 5 years of membership service
• Non-Occupation Disability and Death Benefits
• Occupational Disability and Death Benefits
• Early Retirement at age 50
• Normal Retirement at age 55
• At any age with 30 years of membership service
• At any age with 20 years of Peace Officer/Fire fighter
service
• System paid medical at retirement
• Alaska Cost of Living Allowance (COLA) eligible at
retirement
• Post Retirement Pension Adjustment (PRPA)
o Automatic: Eligible at age 60 or 5 years of
receiving benefits as of 7/1
o Ad Hoc: Eligible if there was a change in the
Consumer Price Index (CPI) at time of retirement
and current year July 1 (system must be 105%
funded)
Ms. Lea elaborated that the automatic PRPA was instituted
because it was prefunded. The ad hoc PRPA was not
prefunded. She explained that the automatic PRPA was a
lesser benefit because an individual had to be age 60 or
have five years as of July 1 of a given year; it paid 50
percent of the change in the CPI in Anchorage for members
under the age of 65 and 75 percent of the change at the age
of 75.
1:43:53 PM
Ms. Lea continued to slide 5 and provided an overview of
PERS Tier 2:
• Vesting 5 years of membership service
• Non-Occupational Disability and Death Benefits
• Occupational Disability and Death Benefits
• Early Retirement at age 55
• Normal Retirement at age 60
• At any age with 30 years of membership service
• At any age with 20 years of Peace Officer/Fire Fighter
service
• System paid medical at:
o At age 60 with at least 5 years of credited
service
o 30 years of membership service
o 25 years of Peace Officer/Fire Fighter Service
• Alaska Cost of Living Allowance (COLA) eligible at
age 65
• Post Retirement Pension Adjustment (PRPA)
o Automatic: Eligible at age 60 or 5 years of
receiving benefits as of 7/1
o No Ad Hoc
Representative Bynum stated that when an individual went
into retirement, they received a medical benefit. He asked
if the same benefit continued once the individual hit
Medicare eligibility. Alternatively, he wondered if the
individual would go onto Medicare and have a supplemental
[medical benefit].
Ms. Lea responded that the retirement health plan was
primary until Medicare age and at Medicare age it became
supplemental.
Ms. Lea continued to slide 6 and reviewed PERS Tier 3:
• Vesting 5 years of membership service
• Non-Occupational Disability and Death Benefits
• Occupational Disability and Death Benefits
• Early Retirement at age 55
• Normal Retirement at age 60
• At any age with 30 years of membership service
• At any age with 20 years of Peace Officer/Fire Fighter
service
• System paid medical at:
o At age 60 with at least 10 years of credited
service;
o 30 years of membership service; or
o 25 years of Peace Officer/Fire Fighter Service
• Alaska Cost of Living Allowance (COLA) eligible at
age 65
• Post Retirement Pension Adjustment (PRPA)
o Automatic: Eligible at age 60 or 5 years of
receiving benefits as of 7/1
Ms. Lea elaborated that the change from the Tier 2 to the
Tier 3 plan was to the medical benefit. Tier 3 required 10
years of membership service at age 60. The COLA and PRPA
remained the same. She moved to PERS tier 4, DC plan:
• Vesting in employer contributions:
o 25% with two years of service
o 50% with three years of service
o 75% with four years of service
o 100% with five years of service
• Normal Retirement at:
o Medicare eligibility (Age 65) with at least 10
years of membership service
o any age with 30 years of membership service
o any age with 25 years of Peace Officer/Fire
Fighter service
• HRA eligible if meet the normal retirement eligibility
• No COLA or PRPA
• Occupational Disability and Death Benefits
Ms. Lea expounded that normal retirement [shown above] only
referred to medical benefits in Tier 4. She relayed that
because it was a DC account, a participant could liquidate
their account within 60 days of termination. There was no
true retirement event as there was in the DB plans. She
elaborated on the HRA [Health Reimbursement Arrangement]
and explained that if a retiree met the requirements for
medical eligibility, they could begin to draw from the HRA,
which could be used for premium payments or spend down for
copays or coinsurance.
1:48:05 PM
Representative Tomaszewski asked if the tiered step on the
vesting applied to SBS [Supplemental Benefits System]
enrollees as well.
Ms. Lea replied that SBS did not have a tiered vesting. She
added that SBS participants were eligible for the 6.13
percent employer contribution immediately.
Representative Stapp asked if the Division of Retirement
and Benefits (DRB) tracked the outflows of individual HRAs
to see what individuals were spending the money on. He
wondered if individuals used accounts primarily for
premiums, deductibles and copays, or known medical
expenses.
Ms. Lea responded that she did not have the statistics on
hand but she could follow up with the information later
that day.
Representative Stapp stated that typically if an individual
bought health insurance under an HRA, there were questions
that were specific to QSEHRAs [Qualified Small Employer
HRA] because the premium tax calculations were deducted off
HRA revenue. He remarked that it was something the state
should be telling participants or working it out with them.
He asked if Ms. Lea had any details.
Ms. Lea responded that she was not the health insurance
expert in DRB and would follow up with the information.
Representative Bynum asked Ms. Lea to describe the
difference between the HRA and medical plan under Tier 3
and what the typical value would be for an average retiree.
Ms. Lea responded that the samples later in the
presentation gave an estimate of the average HRA at the
time of eligibility. She stated that the medical plan was
the same in all tiers; the differences arose in
eligibility, who paid the premium, and how much they paid.
Representative Galvin remarked that recently there had been
some Alaska Retirement Management Board (ARMB)
recommendations on whether or not there was requirement to
retire directly from the system. She asked Ms. Lea to
provide some context on the decision.
Ms. Lea responded that ARMB's recommendations and
resolutions were passed based on what the ARMB felt it
needed to see and not in consultation with DRB. She relayed
that DRB was currently neutral on the decisions. The
current requirements to retire directly from the plan and
to have been employed for at least 12 months prior was a
direct result of the condition of the health plan funding
in 2006. She noted that the health plan funding and the
pension funds had been under water at the time. She
explained there had been a run of people who had been
working years before in the DB plans who had come back to
work for the state when close to retirement age, some for
as little as one day, in order to re-vest in order to
access health insurance. She elaborated that the intent
behind the provision was to prevent that sort of
occurrence.
1:53:15 PM
Ms. Lea continued on slide 8 and detailed the PERS
participation numbers. She detailed the DB population was
dwindling, but there were still 368 Tier 1 members. There
were 7,631 total active employees in the three DB tiers.
The slide also showed employees who terminated with a
balance and had retained their contributions in the plan
who could come back to work for the state at a future date
in order to draw retirement and benefits. Some of those
individuals may have to come back to work for the state for
a time in order to get vested. The slide showed the total
benefit payments for each tier and the split between
police/fire and all others.
Representative Hannan asked for clarification on the
benefit payments in relation to the tiers. She asked if it
was a dollar value.
Ms. Lea responded that the slide showed the number of
people receiving benefits and not a dollar amount.
Representative Hannan stated her understanding that the
slide indicated there were 368 actively working Tier 1
employees. She asked for verification that the slide also
showed there were 20,829 retired people receiving Tier 1
benefits.
Ms. Lea responded affirmatively.
Ms. Lea continued on slide 9 showing the PERS employer
normal cost by tier. She stated that DRB did not normally
split out the cost by the DB tiers when calculating the
overall amount needed to fund benefits in a given year. She
explained that normal cost referred to the percentage of
salary needed in order to fund benefits due for the coming
year. She elaborated that if it was above or below the
estimated amount, it reflected a gain or loss to the
unfunded liability. For example, if DRB estimated it needed
34.31 percent for Tier 1 and it turned out only 30 percent
was needed, it would result in a reduction to the unfunded
liability. Alternatively, if DRB estimated it needed 34.31
percent and it actually needed 40 percent, it would result
in an addition to the unfunded liability. The slide showed
the different percentages needed, which was a direct
reflection of the value of the benefit in each of the
tiers.
1:57:19 PM
Ms. Lea continued to slide 10 and reviewed TRS Tier 1:
• Vesting 8 years of membership service
• Disability Benefits
• Non-Occupational and Death Benefits
• Early Retirement at age 50
• Normal Retirement at age 55
• System paid medical at retirement
• Alaska Cost of Living Allowance (COLA) eligible at
retirement
• Post Retirement Pension Adjustment (PRPA)
o Automatic: Eligible at age 60 or 8 years of
receiving benefits as of 7/1
o Ad Hoc: Eligible if there was a change in the
Consumer Price Index (CPI) at time of retirement
and current year July 1 (system must be 105%
funded)
Representative Tomaszewski asked at what point TRS opted
out of or did not opt into SBS. He understood that Tier 4
teachers did not have SBS.
Ms. Lea explained that in 1955 Social Security extended
benefits to government plans (TRS is a government plan) and
plans had an opportunity to opt into Social Security or use
the replacement plan. She elaborated that teachers across
Alaska had voted to retain TRS as their retirement rather
than go into Social Security. She noted it had remained
that way ever since. She relayed that they could get into
Social Security if they chose to do so. She stated her
understanding that TRS employees could opt into Social
Security on a school district by school district basis. She
relayed that to be eligible for the current SBS system, an
individual had to be eligible for Social Security. She
explained that teachers could not currently enter SBS
because they were not eligible for Social Security. She
explained that SBS was the Social Security replacement
program. She reiterated that teachers had chosen TRS as
their Social Security replacement program and it was not
possible to be in two at the same time.
Representative Tomaszewski asked how PERS employees were
able to be in Social Security and SBS while TRS employees
were not. He asked Ms. Lea how TRS members were able to
vote themselves into the ability to be in Social Security.
Ms. Lea clarified that the State of Alaska as an employer
did not chose to use PERS as their Social Security
replacement program. She explained that they did
participate in Social Security for a time. She explained
that in 1980, they chose SBS as their Social Security
replacement plan. She expounded that while PERS qualified
to be a replacement plan, the state chose SBS instead. She
noted there were PERS employers who had PERS as their
Social Security replacement plan instead of SBS.
Representative Tomaszewski asked how a teacher could get
into SBS.
Ms. Lea responded that it could happen by a referendum
vote. She elaborated that if a school district wanted to
come into Social Security, it would contact the state
Social Security administrator within DRB to start the
process to hold a referendum vote for entry into Social
Security. She explained that it required the involvement of
the Social Security regional representative. She expounded
that they would have to decide how to do the vote. For
example, would it be an all or nothing arrangement or would
existing employees be able to choose whether or not they
wanted to be enrolled, but as soon as their position was
vacated, the new employee must be enrolled in Social
Security.
2:02:55 PM
Representative Allard asked if teachers opted out of Social
Security and SBS in 1989.
Ms. Lea asked if Representative Allard was referring to the
state and SBS.
Representative Allard thought the teachers opted against
having Social Security and SBS in 1989.
Ms. Lea responded that teachers had made the decision in
1955 when Social Security expanded to government plans. She
stated that 1989 was not ringing a bell as a seminal date
for TRS.
Representative Allard thought it had something to do with
SBS. She asked Ms. Lea to follow up with the information.
Representative Bynum stated his understanding that teachers
had never opted out of Social Security, they had never
opted in. He elaborated that SBS was a state plan that
allowed opting into the plan in lieu of Social Security if
eligible. He stated that the TRS program was not an
alternative to Social Security, it was the retirement plan
that did not have Social Security associated with it unless
opting in. He clarified that teachers had the option
currently to get together and opt into Social Security. He
understood there were some issues with the federal windfall
provision that created potential issues, but it was no
longer in place. He expounded that if teachers opted into
Social Security as individuals or by group, it would not
mean they would lose their TRS benefit. He stated they
would receive a Social Security benefit in addition to TRS.
He asked if his statements were accurate.
Ms. Lea clarified that Social Security required a qualified
plan: either Social Security or another qualified plan. She
explained that TRS qualified as a Social Security
replacement plan. She confirmed that at the time the option
to join Social Security was offered, teachers had not opted
in. She agreed they had never opted out, they had not opted
in.
Representative Bynum asked if teachers would lose TRS if
they opted into Social Security.
Ms. Lea responded that teachers would not lose TRS.
Co-Chair Foster noted that Representative Bill Elam had
joined the meeting.
2:07:02 PM
Representative Hannan stated her understanding that an
individual teacher could not opt into Social Security. She
believed it had to be a statewide referendum administered
by the Social Security administrator. She noted that Ms.
Lea had also stated that an individual employee could opt
out if there was a vote in favor of joining; however, the
subsequent employee would have to participate.
Ms. Lea explained that a statewide vote was not required;
it could be done school district by school district, but
the school district had to be the one to opt in because
they had a contribution to pay.
Representative Hannan asked for information about the
differences in the disability and death benefits in TRS
Tiers 2 and 3.
Ms. Lea explained that the benefits offered for the
occupational disability were the same under each of the
tiers with the exception of who paid for the health
insurance.
Representative Hannan stated that the occupational benefit
applied to active employees who died. She asked if there
was a difference between the tiers for non-occupational
death during retirement.
Ms. Lea answered that there was no non-occupational death
benefit in the DC tiers.
Representative Hannan stated her understanding that the
disability and death benefit was only available in Tiers 1
and 2, while under the DC plan in Tier 3 there was no death
benefit unless an employee died at their job.
Ms. Lea clarified that the cause of a person's death had to
be occupational. She explained that if a person died at
their job for another reason, it was not an occupational
disability.
2:09:47 PM
Representative Johnson stated her understanding that for
PERS employees, SBS was an add-on, and there was no Social
Security replacement in Tier 4.
Ms. Lea clarified that there could be no Social Security,
no SBS, and just PERS for an employer. The employer had the
ability to choose what types of plans they wanted to make
contributions to and offer to their employees. There were
about 25 employers that only had PERS.
Representative Johnson understood that different
municipalities could have different things. She asked about
a state employee with PERS, SBS, and Social Security. She
asked for verification that SBS was not the individual's
Social Security replacement because they had Social
Security.
Ms. Lea answered that state employees had SBS instead of
Social Security while actively employed. She clarified that
state employees did not contribute to Social Security while
actively employed. She elaborated that if the individual
had Social Security prior to working as a state employee
they did not lose it.
Representative Johnson asked for verification in the case
of teachers, TRS was the Social Security replacement.
Teachers did not have SBS or Social Security. She provided
a scenario where a school district wanted to have TRS and
Social Security. She asked if they would have to go through
the process of opting out of TRS. She wondered if they
could opt into having TRS, SBS, and Social Security.
Ms. Lea provided a hypothetical scenario where a school
district wanted to opt into Social Security. She explained
that the school district could do so if it chose without
having to make a declaration or change to its TRS. She
noted that they only needed to do so if they were not going
to be in Social Security.
Representative Johnson provided a scenario where a school
district decided to opt into Social Security and TRS would
not act as its Social Security replacement. She asked if
the district could continue in TRS and also have Social
Security.
Ms. Lea answered affirmatively. She explained that teachers
could not currently get into SBS; there would need to be
statutory changes to allow them to do so. She relayed that
they could opt into Social Security at any time. She added
that with the elimination of the two penalties that Social
Security leveled for employment with a non-Social Security
employer, the option became more attractive.
Co-Chair Foster took an at ease to check on the schedule.
2:14:46 PM
AT EASE
2:15:31 PM
RECONVENED
Co-Chair Foster reviewed the timing of the meeting
schedule.
Representative Bynum appreciated a previous question about
death benefits. He stated his understanding that if a
person in TRS Tier 3 opted into Social Security, the
individual would receive a death benefit and potentially a
disability benefit. Additionally, if the individual died,
the retirement collected through the DC component would be
transferable to whatever will they wanted. Whereas
individuals in the Tiers 1 and 2 plans had the benefits
tied to a DB plan. He asked if his understanding was
accurate.
Ms. Lea responded affirmatively. The DB plans paid out a
lifetime benefit to the survivor. Under the DC plans, the
account could be split in any way.
Representative Bynum asked if the survivor benefit
component was something individuals had to opt into. He
understood it was an option under many retirement plans and
when an individual took the option (e.g., under the Federal
Employees Retirement System (FERS) or IBEW) there was a
reduced benefit during retirement. He asked if it was the
same with PERS Tiers 1, 2, and 3 and TRS Tiers 1 and 2.
Ms. Lea replied that it was a statutory provision for
occupational death. A DB survivor could choose to take a
contribution account in lieu of a lifetime benefit, but
they would lose all of the employer contributions.
Representative Allard stated her understanding that in a DC
plan, an individual could leave their money to a spouse in
the event of their death. She believed any remaining money
could then go to the couple's children if the spouse also
passed away.
Ms. Lea replied affirmatively and explained it was the case
because "it's simply a money account."
Representative Allard stated her understanding that under a
DB plan, if a person passed away, the benefits went to a
spouse or next of kin; however, once the spouse passed away
the money would not go to another beneficiary. She asked if
her understanding was accurate.
Ms. Lea responded that the benefit could be left to a
spouse or incapacitated child. When a retiree began
receiving benefits - by statute they used their own
contribution account first - they exhausted their account
within 2.5 years, and the employer paid the cost of their
benefits from then on. Generally, unless a person lived
less than 2.5 years, there was nothing left in the
contribution account to pass onto a non-spouse if the
spouse was deceased.
Representative Allard clarified that she was speaking about
DB plans. She asked if Ms. Lea was saying that under a DC
plan, there may not be any money left within a couple of
years of a person dying.
Ms. Lea explained that she was talking about DB plans.
2:20:14 PM
Representative Allard provided a hypothetical scenario
where a person passed away and had $900,000 left in their
DB plan. She elaborated that the surviving spouse then
passed away with $500,000 remaining in the plan. She asked
what would happen to the remaining $500,000 if the couple
had no incapacitated child.
Ms. Lea answered that unless the retiree died soon after
retirement, there would not be those kinds of funds in
their account. She relayed that if there were any remaining
contributions in the individual's account and the spouse
was deceased, the funds would revert back to the trusts.
Representative Allard shared that she had a 70-year old
friend whose parent had been a State of Alaska employee.
She relayed that he had passed away and her friend had
approximately $1 million left from his defined
contributions that she would be able to leave to a
potential granddaughter. She remarked that people were
living longer and life was expensive in Alaska. She
considered the hypothetical scenario she provided about the
DB retiree who passed away and the remaining funds went to
their spouse. She asked if the remaining $500,000 would go
back to the state if the spouse passed away and there were
no incapacitated children.
Ms. Lea responded that if there was any balance in the
employee's account, it would go to the beneficiary. Any of
the employer contributions set aside for the lifetime
benefit would revert back to the fund.
Representative Allard reiterated her question.
Ms. Lea responded that if there was a balance under the DB
plan - the employee and employer both made contributions to
the DB plan and the two funds were kept totally separate -
upon the employee's death, any benefits contributed by the
employee would go to the surviving spouse. If the spouse
passed away, the funds would go to the designated
beneficiary.
Representative Allard remarked that if the beneficiary
passed away, the funds were "done" and there was "no
inheritance in it." She would take the questions offline.
Co-Chair Foster suggested that Ms. Lea hit the high points
in the remainder of the presentation due to time
limitations.
2:24:02 PM
Ms. Lea explained relayed that the committee had previously
seen slides 1 through 14. She suggested moving to slide 15
and turning the presentation over to Mr. Kershner to
discuss the unfunded liability.
DAVID KERSHNER, ACTUARY, ARTHUR J. GALLAGHER AND COMPANY,
SOUTH CAROLINA (via teleconference), was an actuary from
Gallagher. The firm provided actuarial valuation services
for DRB and ARMB. He continued the presentation on slide
15 titled "Additional State Contributions - History." The
slide showed the historical additional state contributions
for PERS and TRS since 2006. He pointed out a one-time
contribution made by the state in 2015 where $1 billion
went to PERS and $1.7 billion went to the TRS pension trust
and $300 million went to the TRS healthcare trust. The PERS
column reflected a significant drop in the amounts from
2021 to 2022 because SB 55 went into effect in 2022. He
elaborated that under SB 55, the state as an employer no
longer contributed only 22 percent, but the full actuarial
rate based on the payroll of its employees. The additional
state contribution only applied to the non-state employees
within PERS starting in 2022. He noted approximately half
of the total payroll for state and non-state employees.
Mr. Kershner continued to slide 16 showing the latest
projections from September. The ARMB adopted $79.8 million
for PERS and just under $139 million for TRS in FY 26. The
numbers were based on the 2024 valuations. Assuming that
assets earned the expected rate of 7.25 percent per year,
in FY 27 the contribution to PERS was $70.2 million and the
contribution to TRS was $147.1 million. The slide showed
the numbers increasing through FY 39. He relayed that
Gallagher would meet with ARMB in September 2025 for the
adoption of the FY 27 amounts, which would reflect actual
asset earnings between 6/30/24 and 6/30/25. Based on year
to date returns, he expected the returns would likely not
meet the 7.25 expected return, meaning the FY 27
[contribution] amounts would be higher than those shown on
slide 16.
Mr. Kershner continued to slide 17 on FY 26 contribution
rates. He noted that cost rates by tier shown by Ms. Lea
reflected a percentage of compensation. The percentages on
slide 17 were converted to a total plan basis. He explained
that it included PERS DB and DC plans. He highlighted the
PERS DB pension plan cost rate of 2.14 percent and
explained that it was significantly lower than what was
seen earlier in the presentation because the rates on slide
17 were spread over a much larger payroll base including DC
members. There were two differences between the preliminary
and adopted rates for PERS and TRS. He pointed to the DB
health plan normal cost and explained that the
"preliminary" column represented the actuarial determined
rates. He elaborated that ARMB had the flexibility (and had
done so since 2023) not to contribute the health normal
cost to the healthcare trust because the healthcare trust
continued to be significantly over-funded. Additionally,
the preliminary column reflected the funding methodology
ARMB adopted starting in 2018. The adopted rates [shown on
slide 17] reflected the more rapid acceleration of the
amortization of the unfunded liability. For example, the DB
pension plan past service cost rate under the "adopted"
column was 19.29 percent compared to 18.63 percent in the
preliminary column. He highlighted that the basic
differences between the preliminary and adopted amounts was
shown on the bottom of the slide in red. The ARMB's
decisions saved the state about $48 million between PERS
and TRS for FY 26.
2:31:15 PM
Mr. Kershner continued to slide 18 and the contribution
rates since 2008 for PERS and TRS (PERS was reflected in a
graph on the top of the slide and TRS was reflected in a
graph on the bottom). The actuarially determined
contribution rate was shown in orange and the statutory
employer rate was shown in blue. The statutory employer
rate was 22 percent for PERS and 12.56 percent for TRS. The
actuarial rate included the DB and DC rate combined because
the statutory rate was a combined total rate for both
plans.
Mr. Kershner continued to slide 19 titled "Investment
Experience" showing how assets had performed in 2023 and
2024. He noted that 2024 columns were labeled "draft"
because the final figures would not be adopted by ARMB
until June. The actuarial rate assumed assets would earn
7.25 percent annually. In 2023, the market return was about
7.6 percent and in 2024 it was just under 9 percent. The
actuarial rate of return (in the bottom row on the slide)
applied smoothing to the assets to avoid fluctuating
contribution levels because market values could go up or
down from one month to the next or one year to the next.
The smoothing rate recognized market gains and losses of 20
percent per year, so at the end of a five-year period the
market gain or loss was fully recognized.
Mr. Kershner continued to slide 20 titled "Funded Status -
Pension." The slide showed the last three years with PERS
on the left and TRS on the right. The top row (line a)
reflected the actuarial accrued liability showing the
present value of future benefits attributable to service as
of the date of the valuation. The second row (line b) was
the actuarial smoothed value of assets, and the third row
(line c) was the difference between the first two rows
reflecting the unfunded liability. In 2024, the unfunded
liability was just under $5.5 billion for PERS and just
under $1.8 billion for TRS. The funded ratio was shown on
line d representing the assets in line b divided by the
liability in line a: PERS was about 68 percent and TRS was
about 78 percent. There were similar numbers in the
following three rows based on the market value of assets.
The actual market value of assets in the PERS trust on
6/30/24 was $11.555 billion and TRS was $6.2 billion.
2:34:40 PM
Representative Bynum looked at the employer and actuarial
rates on slide 18. He pointed to a 22 percent employer rate
for PERS in 2026 and an actuarial rate of 28.33 percent. He
asked for the differential on the numbers. He stated his
understanding that the actuarial rate was the number needed
to be able support the plan. He asked who paid the 6.33
percent differential for PERS. He asked who paid the TRS
differential.
Mr. Kershner responded that the actuarial rate was based on
the assumptions and funding methodology adopted by ARMB and
was used to ensure the plans reached full funding over a
reasonable period of time. The employer rate was the
maximum rate employers paid per statute. The difference
between the employer and actuarial rates was paid by the
state via additional state contributions. He clarified that
starting in FY 22, the state paid the full actuarial rate
for PERS employees rather than just the 22 percent.
Representative Bynum stated that it also applied to TRS. He
highlighted that the liability to the employer was 12.56
percent. He considered the 31.33 percent actuarial rate
[for 2026] and the 12.56 percent employer rate. He asked if
the differential between the two numbers would be borne by
the state.
Mr. Kershner responded affirmatively. He pointed to the
bottom row on slide 17 [labeled "additional state
contributions"] and noted the 18.77 percent [on the TRS
side of the slide] reflected the excess the state would pay
[for FY 26] because the employer would only pay 12.56
percent.
Representative Stapp looked at slide 20 and referenced a
similar chart from 2005 presented in the Senate Finance
Committee related to the PERS and TRS liabilities. He
stated that in 2003, the accrued liability was
$16,397,252,000 and the actuarial asset value was
$11,439,566,000. The market value of the fund had been just
under $11 billion. Since that time, the state had made
billions of additional contributions to the fund. He asked
how it was possible that the accrued liability and
valuation of the plan was nearly the same amount with all
of the additional contributions.
Mr. Kershner responded that he could not provide every
reason but one key reason to keep in mind was that the
actuarial accrued liability depended on the assumptions
used to measure the liability and in particular, the
assumed rate of return on the assets. Over time, the
expected return on asset assumption had been slowly
dropping (becoming more conservative) because of future
expected equity returns and bond yields. He explained that
when the expected return assumption was lowered, liability
rose because it meant the need for more assets on hand to
pay the benefits. He highlighted that for every 100 basis
point change in the return assumption (e.g., a change from
8 percent to 7 percent), the liability generally increased
by roughly 12 percent. He noted that the presentation would
show later on how assumption changes had impacted the
liability. He relayed that the expected return was 8.25
percent through 2010, 8 percent from 2011 to 2017, 7.38
percent from 2018 to 2022, and 7.25 percent from 2022 to
present. Assumptions also included things like mortality
tables showing longer life expectancy at present when
compared to 20 years back, which increased liabilities.
There were a number of moving parts when comparing the past
with the present. Additionally, there had not been as many
tiers 20 years back as there were at present.
2:41:44 PM
Representative Stapp noted he had been 17 at the time [in
2005]. He looked at slide 15 and highlighted that the total
state contribution made above the valuation of the fund was
$8.5 billion in PERS and TRS. He referenced Mr. Kershner's
statement that 100 basis points was 1 percent. He
considered what aging people mentioned by Mr. Kershner
looked like. He thought it looked like $8.5 billion in
additional contributions. He looked at the exact same
actuarial liability and valuation of the fund presented to
the Senate Finance Committee the previous year. He wondered
why projections were always wrong in the direction that
cost the state $8.5 billion in additional contributions.
Mr. Kershner responded that they were not always wrong, and
he relayed that slides 28 and 29 would show what had
contributed to changes in the unfunded liability in the
past 10 years. He would answer the question further at that
point in the presentation.
Representative Bynum referenced conversations about trying
to use a fixed number. He pointed out that the plans were
fixed and the only thing that changed was how much money
continued to be poured in. He thought a conservative number
would be 6.5 to 6 percent as opposed to 8 or 8.5 percent.
He wondered why they did not take a conservative approach
with a lower number as opposed to using higher numbers and
not being able to catch up. He thought long-term expected
returns should be about 5 to 6 percent instead of 7 or 8
percent.
Mr. Kershner responded that conservative was all relative.
He agreed that 6 percent was more conservative than 7.25
percent and 7.25 percent was more conservative than 8.25
percent. There were a lot of moving parts. He believed the
later slides would help explain how the unfunded liability
changed and the sources for the changes over the past 10
years.
Co-Chair Foster took an at ease to consider the remaining
meeting time.
2:45:37 PM
AT EASE
2:46:29 PM
RECONVENED
Co-Chair Foster asked Mr. Kershner to proceed.
Mr. Kershner continued on slide 21 titled "Funded Status -
HealthCare." He pointed to the funded ratio based on the
actuarial value of assets in line d had been well over 100
percent for the past several years. He explained it was the
reason ARMB had decided against contributing the normal
cost to the healthcare trust starting several years back. A
large reason for the overfunding was because in 2018, DRB
implemented the Employee Group Waiver Plan (EGWP). He
elaborated that the plan received federal subsidies to help
offset the payment of healthcare benefits to plan
participants. The subsidies helped reduce the liability. He
noted that DRB had also implemented some recent changes
with the plan administrator that had increased efficiencies
in the payment of claims, which had also brought down
liabilities.
Mr. Kershner continued to slide 22 which was a graphical
representation of the funded ratio for PERS pension and
healthcare. The blue bars reflected pension and orange bars
reflected healthcare. He pointed out that in 2006 the
pension trust was about 80 percent funded, and the
healthcare trust was slightly over 40 percent funded. He
pointed to a large drop in the funded ratio for the pension
trust in 2008 and 2009, largely because of the financial
crisis where returns were low or negative. He noted the hit
had a lingering impact. He highlighted that the funded
ratio of the pension had increased from 2014 to 2015
because of the $1 billion contribution. The subsequent
years had seen a slow decreasing in the number followed by
a slight increase. The funded ratio for the healthcare
trust had been steadily rising over the past several years.
He noted that EGWP was implemented in 2018 combined with
favorable experience. He added that the liability that went
into the funded ratio in 2006 was measured using much
different assumptions than those used in 2024. The
assumptions had a major impact on the unfunded liability.
Mr. Kershner continued to slide 23 showing a similar
graphical representation for the TRS pension and
healthcare. The pension was shown in green and healthcare
was shown in orange. He noted that the slide showed the
same basic pattern as slide 22 showed for PERS.
2:50:28 PM
Co-Chair Josephson stated that in 2015 the legislature
moved from a level percent of payroll method to a level
dollar method, which lowered the near-term contributions
and eased the state's outlay, partly because of the state's
own financial problems (unrelated to the history of defined
benefits) related almost entirely to oil prices at the
time. He asked for verification that the decision was
impactful in terms of the state's ability to pay down
liabilities.
Mr. Kershner responded affirmatively. He would address the
topic in a couple of slides. He agreed that one of the main
changes made in 2014 was changing the amortization from
level dollar (akin to paying a fixed mortgage where every
year a portion of principal and interest was paid down) to
a level percentage of pay, which assumed payments toward
the unfunded liability would increase as payroll was
expected to increase. He explained that when comparing the
pattern of payments of level dollar versus level percentage
of pay, the level percentage of pay amounts were smaller in
the earlier years (8 to 10 years) and much larger in later
years. The change from level dollar to level percentage of
pay impacted the pattern of paying down the unfunded
liability by pushing more of the payment into the future
years rather than the early years.
Co-Chair Foster recognized Representative Chuck Kopp in the
audience.
Mr. Kershner continued to slide 24 titled "Unfunded
Liability - Background." He noted the next several slides
were intended to address committee members' questions
provided prior to the hearing. The unfunded liability was
the difference between the actuarial accrued liability and
the actuarial smoothed value of assets. He detailed that
because all of the calculations were based on assumptions
made over the next 30 to 50 years, it was a given that
assets may or may not earn the 7.25 percent and there would
be fluctuations in the liabilities. He elaborated that
every year the actuary assumed a certain percentage of
active employees would retire at various ages and would
live for a certain period of time based on life
expectancies. The following year, the actuary received data
showing what actually happened in that past year. He added
there could also be contributions that were greater or less
than the actuarial determined contribution that could cause
increases or decreases in the unfunded liability. There
could also be changes in plan provisions, but none occurred
in a number of years.
Mr. Kershner continued to slide 25 and continued to provide
background on the unfunded liability. In order to analyze
the asset and liability experience, the actuary compared
the actual values of assets and liabilities with the
expected value based on the previous year's valuation and
assumptions. He noted that if the difference was favorable
to the plan, it was an actuarial gain and if the difference
was unfavorable, it was an actuarial loss. For example, if
assets earned 8 percent and the assumed rate was 7.25
percent, it created an asset gain. Whereas if inflation was
5 percent and the assumed inflation rate was 2.5 percent,
it meant the system would be paying out higher post-
retirement pension adjustments (COLA benefits linked to
CPI) and it would create a loss to the plan. There were a
number of reasons why liabilities could be higher or lower
than expected and the Gallagher valuation reports were
posted on the DRB website with details. The contribution
gains/losses were due to the two-year lag that was
introduced in 2014. He noted there was also a significant
contribution gain from the $3 billion state contributions
made in FY 15. Per statute, actuarial assumptions were
reviewed and modified every four years. Assumptions could
cause liabilities to increase or decrease, but there were
generally net increases in liabilities as a result of
assumption changes.
2:56:59 PM
Mr. Kershner continued to slide 26 titled "PERS/TRS Funding
Methodology Established by Alaska Statute in 2014." The
unfunded liability amortization method was changed from
level dollar to level percent of pay. The amortization
period was reset to a closed 25-year period. He explained
that the plans were expected to be fully funded by 2039.
The contribution rate setting process was changed to a two-
year roll-forward, sometimes referred to as a two-year lag.
He noted it led to the contribution gains/losses he
referred to earlier. Additionally, the actuarial value of
assets was reset to the market value of assets with a five-
year smoothing implemented prospectively. A 20 percent
market value corridor was eliminated. He expounded that the
corridor meant the actuarial value could not exceed more
than 20 percent over market value or 120 percent or below
80 percent of market value.
Mr. Kershner continued to slide 27 titled "Pers/TRS Funding
Methodology Modifications Adopted by ARMB in 2018." A 25-
year layered amortization was implemented in 2018 to help
mitigate contribution volatility. He explained that when
there were large gains or losses in a given year, without
layered amortization the gains/losses had to be funded over
a much shorter period of time, which could cause greater
volatility. He explained that the method meant there were
multiple amortization layers amortized over separate
periods of time. When layered amortization was implemented
in 2018, the outstanding balance of the unfunded liability
from the original period established in 2014 was
maintained, which would still be funded by 2039. Going
forward, each year's unexpected change in the unfunded
liability was separately amortized over a 25-year period.
The total amortization amount for each trust was the sum of
all of the individual amortization amounts for all of the
layers.
Representative Stapp asked for more information on layered
amortization. He stated his understanding that the initial
unfunded liability was amortized over a closed period. When
there were gains or losses to the fund, the unfunded
liability was re-amortized in order to smooth out the
state's additional contribution to avoid volatile upswings
and downswings.
Mr. Kershner responded affirmatively. He provided an
extreme example to illustrate the difference between having
layered amortization versus not having layered
amortization. He explained a scenario where the state had
continued with the original 25-year period implemented in
2014 where plans were to be fully funded by 2039. He
provided a hypothetical scenario where in 2037 there was a
significant drop in the asset markets that resulted in
hundreds of millions of dollars in losses to the assets. He
explained that without layering, the losses would have to
be funded over the next two years because there would only
be two years left in the original 25-year period. With
layering, the significant losses would be funded over the
next 25 years from that point forward. He stated that an
extreme example could help appreciate the impact on
volatility by introducing layering.
3:01:58 PM
Representative Stapp understood the methodology. He was
concerned that there were still cash outflow liability
payments to people. He stated that layering amortization
made sense to avoid an unfunded mess in the last couple of
years of the plan. He reasoned that the money would still
be going out the door, meaning assets would have to be
liquidated to pay. He asked what happened if the
inflationary pressure was high and performance was low in a
couple of years with the long term assets of the plan. He
thought it would mean needing to "fire sale" the assets in
order to make liability payments.
Mr. Kershner responded that liquidity is generally not an
issue, but if there was a significant decline in assets, it
would need to be funded to pay benefits promised to
participants. He stated it meant contributions would need
to be higher. He elaborated that the basic funding
principle over the lifetime of a pension plan was that the
money coming in via contributions and investment earnings
had to equal the amount going out to pay benefits and trust
expenses. As investment earnings went up or down,
contributions went down or up to make up for excess asset
returns or deficiencies. He stated it was a balancing act
over time; as assets did better or worse, contributions
needed to be adjusted to ensure there was sufficient
funding to pay benefits.
Representative Stapp remarked that liquidating assets would
impact the rate of return. He reasoned that payments had to
be made because they represented a fixed liability. He
wondered how badly the projected rate of return would be
jeopardized if assets had to be liquidated to make
payments.
Mr. Kershner responded that it would come down because
there would be less of an ability to invest in long-term
equities expected to generate higher returns. He explained
that when there were short-term cash needs, it meant the
need to invest in more short-term assets with lower earning
potential. He expounded that assuming a lower expected
return meant liability would increase significantly, which
would substantially increase contributions.
3:05:37 PM
Mr. Kershner turned to slide 28 titled "Sources of PERS
Pension Unfunded Liability Incr/(Decr) Since 2014." He
noted that slide 29 showed the same information for TRS.
The slides focused on the pension unfunded liability
because the healthcare trusts were overfunded. He continued
with slide 28 and pointed to column A showing market value
gains/losses. A gain meant the trust earned more than the
assumed return and a loss meant the trust earned less than
the assumed return. In 2021, there was a $2.1 billion gain
on PERS pension assets resulting from a 31 to 32 percent
return. The following year there was a loss of about $1.6
billion. The total market value loss over the ten years
shown on the slide [2015 to 2024] was $435 million ($435
million less than projected on a market value basis). The
loss meant the need to make up for the loss either by
excess returns in the future and/or higher contributions.
Column B reflected the smoothed value (gain or loss on the
actuarial value used to determine contributions). He noted
the values were all off by one year because of the five-
year recognition of gains and losses and they all crossed
over from one year to the next. He highlighted that columns
B through E totaled the net impact on the unfunded
liability. The impact of the market loss was $435 million
over the ten-year period and $447 million of losses in the
actuarial/smoothed value.
Mr. Kershner moved to column C on slide 28. Column C showed
the impact on liabilities due to experience of the plan
(i.e., retirement rates, life expectancy rates, inflation
rates). Over the ten years shown on the slide, there were
just under $250 million in reductions in liability because
the plan experience had been favorable compared to
actuarial assumptions. Column D reflected the contribution
gain/loss. He pointed to the $1 billion infusion into the
PERS pension in 2015 compared to actuarial projections,
resulting in a $835 million contribution gain. Overall,
$636 million more had been contributed to reducing the
unfunded liability. Column E showed assumption changes. He
detailed that assumption changes were revised every four
years. In 2018, the expected return on assets was lowered
from 8 percent to 7.38 percent and updated mortality tables
with longer life expectancies had been adopted. The PERS
pension liability had increased by slightly over $500
million just from the assumption changes in 2018. Four
years later, there was another $206 million increase in the
unfunded liability due to assumption changes, partially due
to further lowering the expected return assumption as well
as a number of other assumptions. Over the ten-year period,
$761 million was added to the unfunded liability due to the
use of more conservative assumptions. The last column on
the slide combined columns B through E and showed that the
unfunded liability was $325 million more than expected.
3:11:31 PM
Representative Stapp thought it looked like it was time for
a reduction in assumption changes again. He wondered what
the number would be. He was hoping maybe $100 million. He
remarked that it looked like some progress was being made.
Mr. Kershner agreed that Gallagher would start looking at
the assumptions in 2026 for ARMB and new assumptions would
be adopted in 2026. He relayed that it was too early to
tell [what the number would be]. He elaborated that
Gallagher may pull back some of its assumptions. For
example, by not assuming salaries would grow as fast as the
current assumption. He explained it would help offset some
increases that may occur if the investment return
assumption were to be lowered to something like 7 percent.
He added that the discussions had not yet occurred. The
review of the assumptions was required by statute.
Representative Stapp looked at the contribution gain/loss
column on slide 28 and observed that it looked like the
state was losing out the vast majority. He highlighted
there had been annual losses from 2016 through 2020 and in
2024 (six out of ten years). He wondered if there was
anything that could be done to do better than 60 percent on
the gain/loss ratio.
Mr. Kershner responded that a margin could be added to the
contribution calculation by adding something to liability
to guard against adverse experience. He explained it would
mean prefunding some future losses that may be incurred.
There were a number of techniques that could be used, but
without adding those types of margins, the patterns shown
on slide 28 resulted. He explained that in 2014, when the
two-year contribution lag was introduced, it meant the
contribution rates for a particular year were based on the
valuation done two to three years earlier. For example, the
FY 26 contribution rates were based on the 2023 valuation.
He remarked that things had changed between 2023 and 2026.
The figures seen in column D from 2016 to 2024 were due to
the two-year lag. The losses shown from 2016 to 2020 meant
that contribution rates had been rising steadily. By
setting the contributions based on a lower rate that
occurred three years earlier compared to the current rate,
it gave rise to the contribution losses. The losses were
followed by several years where there had been a decline in
contribution rates, which helped create contribution gains.
Representative Stapp appreciated the in-depth answers. He
asked what it looked like in terms of basis points. He
considered Mr. Kershner's statement that 100 basis points
was the equivalent of 1 percent. He wondered about a
scenario where it was amortized over a decade and asked
what it did to assumptions. He recognized that assumptions
were not limited to the rate of return and included things
like longer life expectancy and COLA adjustments. He asked
what it looked like in a monetary number. He wondered if a
1 percent miss was the equivalent of $500 million.
Mr. Kershner responded that for a $1 million increase in
unfunded liability funded over 25 years, the extra payment
in the first year would be about $64,000. Under level
percentage of pay, the payment would be assumed to increase
every year going forward by payroll growth. Similarly, if
the unfunded liability went down by $1 million, the first
year's payment would be $63,000 less.
Representative Stapp asked how to get out "from under this
thing."
Mr. Kershner responded that actuaries were always focused
on the long term, and they always saw the projected funded
ratio slowly creeping up to reach 100 percent at the end of
the amortization period. He stated that it was a valid
outlook, but he compared it to a cruise ship moving towards
a distant destination. He elaborated that the cruise ship
did not make a one-time change, it turned gradually to get
to where it needed to be over time. He explained it was the
way actuarial funding of long-term obligations worked in
order to avoid, to the degree possible, significant
fluctuations from one year to the next. He stated it was a
different environment currently than 10 to 20 years back in
terms of expectations for the future. In the past,
assumptions were that people would live much shorter
lifetimes and that assets would earn significantly more. He
stated that when comparing 20 years back to the present,
too many factors had changed to pinpoint every reason. On a
going forward basis, assuming assumptions were used to
measure liabilities that were reasonably expected to
materialize over the future, the desired goal of 100
percent funding would be reached, but it was a slow process
to get there.
3:20:28 PM
Mr. Kershner continued to slide 29 titled "Sources of TRS
Pension Unfunded Liability Incr/(Decr) Since 2014." He
pointed to the last column on the slide showing a net
decrease in the unfunded liability by just under $1.4
billion. He relayed that most of the total in column D
[titled "Contribution (Gain)/Loss"] was due to the large
$1.7 billion contributed to the TRS pension in FY 15. He
noted the other changes almost offset one another. He
stated that TRS was in a much better funded spot than PERS.
He explained that over the past couple of years, teacher
salaries had not increased as rapidly as salaries for
public employees, particularly police officers and
firefighters. There had also been a significant number of
delayed retirements because teachers had been continuing to
work well into their 70s. He detailed that it meant
liabilities were lower because they were deferring when
they expected to begin payment of the benefits. The
teachers' system had better experience over time on the
liability side, primarily because of lower salary increases
and delayed retirements. He noted that the asset experience
was generally the same on a relative basis because PERS and
TRS had the same asset allocation.
Mr. Kershner moved to slide 30, which showed the historical
unfunded liability dollar amounts for PERS. He noted that
the blue bars represented pension and orange bars
represented healthcare. He highlighted that the blue bars
were steadily rising beginning in 2006. He pointed out that
it was comparable to the funded ratio graph earlier in the
presentation. He explained that as the funded ratio
decreased, the unfunded liabilities were going up. He noted
that beginning in 2019 the orange bars were negative,
meaning healthcare trusts were in a surplus position. The
dollar amounts were shown at the bottom of the slide for
each year.
Mr. Kershner moved to slide 31, which showed the same info
for TRS with green bars representing pension and orange
bars representing healthcare. The TRS unfunded liabilities
were lower and the funded ratios were better.
Mr. Kershner continued to slide 32 titled "How are State
Contributions Determined?" He relayed that actuaries had to
consider several factors including the underlying costs of
the benefits. He noted that more valuable benefits with a
COLA feature were costlier. Another factor to consider was
the total payroll and how the payroll was expected to grow
(contribution rates were the underlying cost divided by
payroll). He relayed that payroll also generated
contributions. For example, PERS non-state employers
contributed 22 percent of payroll. He explained that if
payroll was not as high as expected in the future, there
would be lower contributions from employers. He elaborated
that a lower payroll figure meant the state's contribution
rate went up. Other considerations included how much
members, employers, and the state paid.
Mr. Kershner noted that member contributions were set by
statute. Under the DB plan, peace officers and firefighters
contributed 7.5 percent of pay. All other PERS members
contributed 6.5 percent of pay and TRS members contributed
8.65 percent.
3:26:40 PM
Mr. Kershner explained that the member contribution rates
did not fluctuate based on the funded status of the plan
and would only change if statutes changed. He detailed that
under PERS the non-state employers contributed 22 percent
of payroll. Starting in FY 22, the state as an employer
under PERS contributed the full actuarial rate based on the
payroll of its employees. He noted that the payroll of the
state's employees was just under 50 percent of the total
PERS payroll. He detailed that TRS employers contributed
12.56 percent payroll as defined in statute.
Mr. Kershner continued to slide 33 and continued to address
how state contributions were determined. He relayed that
actuarially determined contributions consisted of two
components including the normal cost (the cost of benefits
expected to accrue in the upcoming year) and the past
service cost (amortization of the unfunded liability). He
explained that the DB normal cost was paid entirely by
member contributions and a portion of employer
contributions. The employers also contributed to DC costs
(PERS Tier 4 and TRS Tier 3). The DC costs included
occupational death and disability benefits, healthcare, the
DC contribution (5 percent for PERS and 7 percent for TRS),
and HRA contribution (3 percent). He noted that there were
no member contributions toward the DC costs. A portion of
the employer contribution also went toward the DB past
service cost. The amount was determined by taking the total
contribution (22 percent of pay for PERS non-state
employers, 12.56 percent for TRS, and the full actuarial
rate for PERS state employers) and subtracting the portion
paid for the DB normal cost and DC costs. The net balance
went toward the DB past service cost. The DB past service
cost not paid by the employers was paid by the state as
additional contributions. He concluded the presentation.
Representative Bynum stated that the reason the issue was
under discussion was to understand what the state's current
retirement system looked like and what reform looked like.
He provided a hypothetical scenario using a municipal
employee under the PERS Tier 4 system where an employer was
able to take all of the money it was obligated to pay for
the employee (instead of paying the past liability for
previous employees (under PERS Tiers 1 through 3)) and take
the difference the employer received on behalf from the
state and give it to the employee for retirement. He asked
what percentage the employer would be able to give an
employee in in their DC plan. He asked if pension reform
would even be under discussion if the scenario was
allowable.
3:32:59 PM
Mr. Kershner responded that it was impossible to answer the
hypothetical question. He explained that in any pension
reform, the first thing the actuary looked at was the
underlying cost of the benefits. If the cost of the reform
benefits increased, it would take more contributions to
fund them, whether it came from members, employers, or the
state. He explained that if the current funding structure
remained in place, the extra cost would fall to the state
because members and employers had fixed contribution
levels. He detailed that it would depend on the type of
reform, the associated cost of the reforms, and whether the
amounts paid by members, employers, and the state were
changing.
Representative Bynum looked at a PERS Tier 4 employee in
2025, which had a cost to the employer. Currently the
employee paid 8 percent of their wage into their DC plan
and the employer contributed about 5 percent plus another
4.5 percent for healthcare and other health benefits.
Additionally, the employer had to pay a past liability per
employee for the previous DB plan at about 12.5 percent. He
added that if the actuarial amount was over 22 percent, the
state picked up the difference. He looked at a 2025 chart
for PERS on slide 9. He asked for the differential between
the 22 percent employer contribution and what the state had
to pay in 2025.
Mr. Kershner answered that the percentages shown on slide 9
were the percentages of each individual pay. He directed
members to slide 17 to look at how the percentages were
funded.
Representative Bynum remarked that whether it was 2 percent
to 5 percent of the on behalf payment, it would mean the
employer would have between 12.5 and 17.5 percent for the
employee benefit if they were not paying for the past
liability. Currently, the municipal PERS Tier 4 employee
did not receive that amount because of the past liability
payment. He reasoned that if the state had the money
available for the employer to pay the employee in the DC or
some other retirement plan, there would not currently be a
conversation about an $8 billion, $16 billion, or $12
billion past service liability. He stated that it would
mean the retirement program would be healthy and the
employees would be taken care of. He added that at the end
of the day it was about what kind of benefit was received,
how much the plan cost, and who would pay for the plan.
Under the current scenario, the current employer and the
current employee were burdened because they were not able
to take the benefit.
Co-Chair Foster noted that the committee was at the end of
its time allotted for the bill during the meeting. The bill
would be heard again the following day.
HB 78 was HEARD and HELD in committee for further
consideration.
3:38:00 PM
AT EASE
3:57:31 PM
RECONVENED
HOUSE BILL NO. 53
"An Act making appropriations for the operating and
loan program expenses of state government and for
certain programs; capitalizing funds; amending
appropriations; making supplemental appropriations;
making reappropriations; making appropriations under
art. IX, sec. 17(c), Constitution of the State of
Alaska, from the constitutional budget reserve fund;
and providing for an effective date."
HOUSE BILL NO. 55
"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."
3:57:37 PM
^AMENDMENTS
3:57:40 PM
Co-Chair Josephson relayed that the committee rolled
amendments 94 through 96 to the bottom of the amendment
process. He encouraged members to offer any remaining
amendments they may have. He discussed his intent for the
remainder of the meeting.
4:00:11 PM
AT EASE
4:01:40 PM
RECONVENED
Co-Chair Josephson asked if there were members who wanted
to offer amendments.
Representative Stapp MOVED to ADOPT Amendment 42 (copy on
file):
Agency: Corrections
Appropriation: Administration and Support
Allocation: Office of the Commissioner
Transaction Details
Title: Zero-Based Budgeting for Agency
Wordage Type: Intent
Linkage: Agency - Corrections
Wordage
It is the intent of the legislature that the
Commissioner submit a report by December 20, 2025 to
the Co-chairs of the Finance committees and to the
Legislative Finance Division that encompasses a Zero-
Based Budget. The report must include an analysis and
justification for every position and expense.
Explanation
During difficult fiscal times, it is necessary for the
Legislature to look at the entire budget, down to the
minute details, in search of government efficiencies.
Zero-Based budgeting, where a department must justify
all expenses from zero, improves accountability and
optimizes cost management. Recognizing that such a
dramatic shift in how we prepare our budget within one
year would cause significant issues, this language
provides for the Department of Corrections to serve as
a pilot for this style of budgeting.
Co-Chair Josephson OBJECTED for discussion.
Representative Stapp explained the amendment. The amendment
included intent language that would direct the commissioner
of the Department of Corrections (DOC) to submit a report
by December 20, 2025, to the finance committees and the
Legislative Finance Division (LFD) that encompassed a zero-
based budget. The objective was to get a handle on general
fund expenses. He stated it was getting very challenging to
see discrepancies in how budgeting was done via baseline.
He elaborated that requiring a department or RDU component
to come before the finance committee or subcommittee to
justify its expenses from zero would be helpful for
legislature to understand where the money went and what it
did. He asserted that zero-based budgeting improved
accountability and optimized cost management. He recognized
it was probably unrealistic to transition the entirety of
the state's budget over to a zero-based process. He thought
DOC was too large to attempt to make the change in a single
year, but he thought the committee may be able to have a
discussion about finding an RDU component or another
department for zero based budgeting.
Representative Hannan opposed the amendment. She believed
that out of all the departments, DOC was least likely to be
able to predict its costs. She stated that DOC was a
downstream agency. She elaborated that if the department
went to zero based budgeting at the beginning of the
current year and started with no inmates and no
programming, it would have to specify who it expected to
get, in what condition, for how long, and what services the
individuals needed. Hypothetically, the department could
say it expected zero sex offenders, zero inmates in for
lifetime sentences, and no inmates in need of kidney
dialysis; however, instead they received medically
complicated long-term inmates. Yet the department had only
budgeted for short-term offenders with minimum security.
She believed that due to the nature of DOC, it was the
least probable to succeed at zero based budgeting. She
thought the budgets would be very inaccurate.
4:05:14 PM
Representative Johnson thought it could be done. She
acknowledged it would never be specific and 100 percent
accurate. She stated that was not the point of the process,
the point was to break out where the actual costs resided.
She highlighted that the DOC budget was continually
increasing and had large supplementals. She stressed that
the legislature needed to get a handle on the reason costs
were continuing to increase. She did not believe the
increases were aligned with the number of inmates. She
thought there was something else that appeared to be going
on, which likely had to do with management. She believed an
honest try to begin the process and provide the legislature
with a report would be a good way to start to get a handle
on the situation. She stated that the legislature had to do
some management and oversight of the budget at some point.
She supported the amendment.
Representative Bynum supported the amendment. He stated
that after talking with the legislative finance team, he
understood there were things that could be done in addition
to zero-based budgeting to help the legislature get a
better handle on what was occurring throughout departments
and divisions. He highlighted his experience as a previous
utility director and relayed that it was possible to use
zero-based budgeting with uncertainty. For example, there
were times in a utility where it was not possible to
predict the cost of diesel fuel, disasters, copper,
shortfalls in labor, and more. He stated there were many
challenges running a utility, just like there were
challenges running DOC. He explained that it required
quantifying the anticipated unknowns and budgeting around
them. He furthered that it would mean a department would
identify items to the legislature and accompanying
assumptions used to come up with a budgetary number. He
thought DOC had the ability to do the work. He added that
the department should know what its costs were. He thought
the exercise would be very helpful for all of the
departments to undertake.
4:08:27 PM
Co-Chair Josephson asked Mr. Painter with the Legislative
Finance Division (LFD) to join the committee. He thought
DOC would start with the fact it had a given number of
prisoners and there were laws about how many correctional
officers were needed and collective bargaining agreements
to honor. Additionally, DOC had to heat the prisons, feed
inmates, and provide them with dental and medical care. He
referred to the Cleary decision [from the Alaska Supreme
Court] related to prisoners' rights. He thought that if a
department went to the bottom of its budget, the budget
would come right back up with many mandatory requirements.
ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
answered that in a zero based exercise, a department would
have to label its constraints. Some constraints included
collective bargaining contracts and other statutory
requirements. He remarked that they may end up in a similar
place. He believed the intent of zero-based budgeting was
that a department evaluate each expenditure and justify it
to the legislature even if they already had reasons for
things. He noted that it was a different way to look at
budgets. He stated that Alaska generally had incremental
budgeting for the operating budget, and the capital budget
was essentially a zero-based budget. He was not certain the
result would come to a different place, but it would be a
different lens.
Co-Chair Josephson asked if Mr. Painter had seen similar
intent language in the budget previously.
Mr. Painter replied that he could not think of an example
of zero-based budgeting language in the budget in the past.
Representative Tomaszewski supported the amendment. He
thought it was the legislature's fiduciary responsibility
to understand what the departments were doing. He thought
it was a great first step in the process. He believed it
could and should be done. He thought the legislature should
be looking into zero-based budgeting tactics for other
agencies in the future.
4:11:36 PM
Representative Allard supported the amendment. She likened
the intent language to a forced audit and thought it would
provide true transparency. She thought all departments
should use zero-based budgeting.
4:11:52 PM
Representative Galvin asked if the exercise would retire
time or funds on the department's behalf. She wondered if
departments would have to hire someone to help guide them
through the process of compiling a report to provide to the
legislature.
Mr. Painter answered that it would be up to the department
to determine. He elaborated that departments had budget
staff and the Office of Management and Budget (OMB) had
staff. He did not know if that would be sufficient or if
departments would need to contract out or shift resources.
Representative Johnson asked if Mr. Painter knew of other
states doing zero based budgeting.
Mr. Painter responded that he was not familiar with what
other states did. He relayed that the Alaska Mental Health
Trust Authority (AMHTA) used zero-based budgeting. He
elaborated that AMHTA's increments were all temporary and
the agency did not have anything in the base budget.
Representative Johnson hoped zero-based budgeting was a
good way for the legislature to figure out where the costs
resided and to look at the budget in a different way. She
asked Mr. Painter if he had other suggestions on a way to
get to the numbers if zero-based budgeting was not the
answer.
4:14:28 PM
Mr. Painter replied that there were a few other approaches,
specifically related to DOC, which he was aware of due to a
bill introduced the previous session in Florida. He
explained that Florida's version of OMB and LFD conducted
joint forecasts for some items including prison
populations. He noted that there was not a lot of joint
forecasting done in Alaska. Other states had varying
degrees of the practice used in Florida. He noted there had
been intent language in the DOC budget the previous year
for DOC to work on projections cooperatively between the
branches, but that did not really occur. He noted it could
work, but due to turnover within DOC, it had been unable to
do so in the past year.
Representative Johnson stated her understanding that
Florida, Texas, and possibly one other state did zero-based
budgeting. She remarked that the Texas budget had to be
large. She highlighted that Alaska had a lot of vacancies
and different things where the legislature did not know
where the money was being spent. She pointed out that the
DOC budget was high and continuing to grow. She supported
the amendment in order for legislators to get their eyes on
the budgets and to get a sense they were adhering to their
constitutional responsibility.
Representative Bynum stated another valid reason to support
the amendment was to ask the department to undertake the
exercise and talk about what it was doing in its
expenditures. The alternative was to offer amendments in
committee to take large cuts to the department's budget and
to hear from the department later about why it really
needed the funds. For example, the budget for some of DOC's
facilities had grown by nearly 30 percent since FY 21,
despite the addition of no new personnel. He thought it
begged the question about what was actually taking place
within the department. He wanted to have a great
relationship with the departments and did not want his
support for the amendment to indicate otherwise. As
appropriators, he believed legislators needed to have all
of the information available. He did not have a good
understanding of what the departments were actually doing
with their budgets because of how the budgets were being
passed from one year to the next. He compared it to a game
of telephone. He clarified that he was not in favor of
doing zero-based budgeting annually because it was a heavy
lift. He thought it should be done regularly or through
performance audits, which had to be requested by the
legislature.
4:18:45 PM
Representative Stapp provided wrap up on the amendment. He
appreciated the comments by committee members. He relayed
that several states including Georgia, Florida, and Texas
used zero-based budgeting. He underscored that the Texas
budget was $321.3 billion. He was proposing a much smaller
version. He remarked that legislators were frequently told
by educators that the legislature had not made the same
increases in the education budget, but the DOC budget
continued to grow exponentially. He noted that one of the
committee members mentioned the DOC budget had grown 30
percent in the past handful of years. He stated that if the
expenses were justified, the legislature had to pay them.
He did not know exactly why DOC's numbers continued to rise
when the prison population went down. He noted that
Representative Hannan had highlighted there were
constitutional obligations and fixed costs associated with
prisoners and he did not believe the legislature could
spend any time on those items. He agreed the legislature
needed to pay collective bargaining agreements to
employees. He recognized there may be a valid reason for
the expenses, but he wanted to know where the rest of the
money was going because it did not all go to constitutional
obligations.
Co-Chair Josephson MAINTAINED the OBJECTION.
A roll call vote was taken on the motion to adopt Amendment
42.
IN FAVOR: Stapp, Allard, Tomaszewski, Bynum, Johnson
OPPOSED: Jimmie, Hannan, Galvin, Schrage, Foster, Josephson
The MOTION to adopt Amendment 42 FAILED (5/6).
4:21:17 PM
Representative Stapp MOVED to ADOPT Amendment 18 (copy on
file):
Agency: Administration
Appropriation: Office of Information Tech
Allocation: Chief Information Officer
Transaction Details
Title: Utilization of AI for Zero-Based Budgeting
Wordage Type: Intent
Linkage: Agency - Administration
Wordage
It is the intent of the legislature that the agency
utilize Artificial Intelligence technology to assist
with Zero-Based Budgeting principles.
Explanation
During difficult fiscal times, it is necessary for the
Legislature to look at the entire budget, down to the
minute details, in search of government efficiencies.
Zero-Based budgeting, where a department must justify
all expenses from zero, improves accountability and
optimizes cost management.
Agency: Administration
Appropriation: Office of Information Tech
Allocation: Licensing/Infrastructure/Servers
Transaction Details
Title: Funding for Microsoft 365 Copilot AI Tools
for State Employees Section: Section 1
Type: Inc
Line Items (Amounts are in thousands)
Personal Services: 0.0
Travel: 0.0
Services: 732.7
Positions
Permanent Full-Time: 0
Permanent Part-Time: 0
Temporary: 0
Funding (Amounts are in thousands)
1004 Gen Fund 732.7
Explanation
Microsoft 365 Copilot provides AI assistance which
greatly enhance the productivity and utilization of
current Microsoft products. This amendment restores
the funding that was disapproved in subcommittee.
Agency: Administration
Appropriation: Office of Information Tech
Allocation: Licensing/Infrastructure/Servers
Transaction Details
Title: Artificial Intelligence Projects
Section: Section 1
Type: IncOTI
Line Items (Amounts are in thousands)
Personal Services: 0.0
Travel: 0.0
Services: 360.0
Commodities: 0.0
Capital Outlay: 0.0
Grants: 0.0
Miscellaneous: 0.0
Total: 360.0
Positions
Permanent Full-Time: 0
Permanent Part-Time: 0
Temporary: 0
Funding (Amounts are in thousands)
1004 Gen Fund 360.0
Explanation
The Department of Administration is seeking to build
initial AI tools in an effort to reduce administrative
waste by increasing productivity. This amendment aims
to restore the funding that was disapproved in
subcommittee.
Representative Hannan OBJECTED for discussion.
Representative Stapp explained that the amendment looked to
utilize an artificial intelligence (AI) appropriation
reduced by the subcommittee. The purpose was to start to
achieve the ability to do a zero-based budget. He stated
that in the previous amendment, the committee member from
Juneau had asserted to the ability of the department to
form the task. He stated it was a valid argument. He
suggested that if the state was going to start utilizing AI
for efficiencies in departments, allowing the AI tool to be
utilized for the purpose of zero-based budgeting was a
worthy goal. He agreed that zero-based budgeting could be
complicated and resource intensive. He thought it was a
good use of AI Copilot.
Representative Bynum supported the amendment. He thought it
was a valuable opportunity for the state to use AI as a
tool. He knew many individuals in the technical world were
deploying the technologies and creating tremendous
improvements in productivity. He stated the tools were not
meant to replace people, but they would allow state
employees to maximize their time and bring information
forward that may not have been readily available. He stated
it was a tremendous opportunity to increase productivity
and he strongly supported the amendment. He thought it
would be money well spent. He believed the departments
would be able to come back to the legislature to outline
how it was beneficial.
4:23:55 PM
Representative Hannan stated that when she met with the
Office of Information Technology (OIT) on the two AI
components, the division's description did not include
zero-based budgeting. She could wrap her head around the
amendment if it was for OIT to attempt zero-based
budgeting. She noted OIT had fairly predictable costs and
employees. However, the department had requested the funds
for a new product to pilot for a specific purpose related
to payroll. She underscored that the amendment would fund
the increment but directed the department to use it for
zero-based budgeting. She had seen no analysis or argument
from the department indicating it would use the AI product
for zero-based budgeting.
Co-Chair Josephson shared that he met with Department of
Administration (DOA) officials and there was no discussion
of zero-based budgeting.
Co-Chair Schrage opposed the amendment. He recalled the
requested increment was for about 2,000 licenses to deploy
out to various employees throughout the state, but he did
not hear much of a plan about what training would be
provided and how the Copilot services would be utilized. He
thought there had not been a lot of thought given to
choosing the number 2,000. He had not heard substantial
reasoning that justified the expense. He was not saying
there was no value in using AI in the future, he thought it
could make employees more efficient and information more
readily available. He had not heard of any connection to
zero based budgeting from the department. He recalled there
was a small pilot program planned for later in the spring
and he wanted to wait for the results prior to investing
more money.
Representative Stapp noted there was someone available from
DOA who could answer the questions. He had shared Co-Chair
Schrage's concerns when the item had moved out of
subcommittee. He had subsequently talked to the department
and had communicated he was looking at transitioning some
of the budgetary process from a baseline budget to zero-
based budgeting. He had asked the department if it could
utilize the [AI] resources to not only improve employee
efficiency, but to give a targeted purpose to do so. He
asked if the department could address the members'
questions.
Co-Chair Josephson noted that the individual was not
currently in the room and he was inclined to go to a vote.
4:27:31 PM
Representative Hannan MAINTAINED the OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Johnson, Allard, Bynum, Tomaszewski, Stapp
OPPOSED: Hannan, Jimmie, Galvin, Foster, Schrage, Josephson
The MOTION to adopt Amendment 18 FAILED (5/6).
Representative Bynum MOVED to ADOPT Amendment 17 (copy on
file):
Agency: Administration
Appropriation: Office of Information Tech
Allocation: Licensing/Infrastructure/Servers
Transaction Details
Title: Add Funding for GA: Microsoft 365 Copilot AI
Tools for State Employees
Section: Section 1
Type: Inc
Line Items (Amounts are in thousands)
Personal Services: 0.0
Travel: 0.0
Services: 365.0
Commodities: 0.0
Capital Outlay: 0.0
Grants: 0.0
Miscellaneous: 0.0
Total: 365.0
Positions
Permanent Full-Time: 0
Permanent Part-Time: 0
Temporary: 0
Funding (Amounts are in thousands)
1004 Gen Fund 365.0
Explanation
Funding for approx 1000 AI CoPilot Licenses.
Representative Hannan OBJECTED for discussion.
Representative Bynum explained that the amendment pertained
to the same technology [as in the previous amendment]
applied in a different way. The amendment would enable DOA
to use AI tools to fully integrate into the Microsoft
Office suites. He stated it would be advantageous to the
departments and would provide the ability to navigate
Microsoft tools with ease and increased productivity. The
amendment would add funding of $365,000 and would provide
productivity for 1,000 personnel. He emphasized that the
tool would increase government efficiency. He knew people
who were using the [AI Copilot] tool at work in the
healthcare field. He shared that they were immediately able
to use the tool to make meetings more productive and it had
increased the capability for staff to communicate with
colleagues. He considered discussions about how to deploy
the program within state government. He highlighted the
Department of Health where there were tremendous
constraints on employees being able to provide services. He
noted that the tool did not require years of training. He
detailed that the individual he had spoken with had been
using the product for two weeks and they were already
putting it to tremendous use. He stated that much about
learning the tool would be self-exploratory and he thought
it would take some time to explore the use. He pointed out
that AI had not replaced him as an engineer or legislator,
but it had made him more productive. He strongly supported
deploying AI technology to increase efficiency in deploying
resources more efficiently for citizens.
4:31:31 PM
Co-Chair Schrage generally agreed with many of the remarks
made by Representative Bynum. He believed the tools could
be very powerful, but he was concerned that new tools could
come with new challenges, and he had personally used [AI]
tools in the past and had seen errors and other mistakes
made. He thought there needed to be a plan for how the tool
would be rolled out and how employees would be trained in
order to be aware of some of the problems that could occur.
He pointed out that there had been issues in state
government where AI tools were used and official documents
had false references and other errors that never would have
occurred if a human produced the document without the use
of AI tools. He was not indicating the tools were not
powerful, useful, and helpful, but he believed they needed
to be applied with the proper training to avoid unintended
consequences, especially when implemented in a department
that he believed was already strained. He opposed the
amendment.
Representative Bynum provided wrap up on the amendment. He
understood that concerns voiced by Co-Chair Schrage could
happen. He shared that in his experience using the
technology, it was able to capture ideas, go through emails
and documents, and bring the ideas into one space that he
could read. He relayed that he checked any references
included in the information for accuracy. He stressed that
the tools had brought information to his attention that he
would not have thought to look at, which had been a
tremendous resource. He stated the tools saved substantial
time. He agreed that if someone used the tool to do all of
the work, it was a bad tool. He did not believe the change
in technology took away the need for due diligence.
4:34:12 PM
AT EASE
4:36:17 PM
RECONVENED
A roll call vote was taken on the motion.
IN FAVOR: Bynum, Stapp, Johnson, Tomaszewski
OPPOSED: Hannan, Jimmie, Allard, Galvin, Schrage, Foster,
Josephson
The MOTION to adopt Amendment 17 FAILED (4/7).
4:37:08 PM
Representative Bynum remarked that he had [in a previous
meeting] made a motion to rescind action on Amendment 14
(copy on file). However, after discussion with members, he
did not believe it would have a positive result. He had
many concerns about the unallocated cut and had previously
made his concerns known. He had provided a solution to the
co-chairs and he thought it was a way to get around the
potential unconstitutional unallocated cut; however, he
would not offer it because he did not believe he had the
votes to pass it.
4:38:10 PM
Representative Bynum stated there had [previously] been
substantial discussion about Amendment 49 (copy on file)
that had been tabled [Amendment 49 would provide funding
for the unfunded HB 230 (33rd Legislature), AS 14.20.225,
providing $5,000 to certified teachers and reimbursement
for teachers pursuing initial certification or renewing
certification]. He wondered whether Co-Chair Josephson or
Representative Galvin planned to bring the amendment back
before the committee.
Representative Galvin stated her intent to remove Amendment
49 from being tabled.
There being NO OBJECTION, it was so ordered.
Representative Galvin thought a conceptual amendment had
previously been adopted to Amendment 49. She believed
Representative Bynum had something he wanted to say.
4:39:32 PM
Representative Bynum shared that he had worked with LFD and
Legislative Legal Services to come up with a conceptual
amendment to address some of the previously expressed
concerns from committee members. He MOVED to ADOPT
conceptual Amendment 2, 34-LS8001\A.8 (Marx, 4/2/25) (copy
on file) to Amendment 49:
Page _, following line _:
Insert a new bill section to read:
"*Sec.A. DEPARTMENT OF EDUCATION AND EARLY
DEVELOPMENT. The sum of $554,000 is appropriated from
the general fund to the Department of Education and
Early Development, education support and
administrative services, student and school
achievement, for teacher incentive payments and
reimbursements for national board certification, as
authorized by AS 14.20.225, as follows:
(1) the amount necessary to make all reimbursement
payments authorized by AS 14.20.225(b);
(2) the remaining balance to make national board
certification incentive payments authorized by AS
14.20.225(a), to be distributed on a first-come,
first-served basis."
Representative Hannan OBJECTED for discussion.
Co-Chair Josephson recognized Representative Julie Coulombe
in the committee room.
Representative Bynum requested an at ease.
4:40:40 PM
AT EASE
4:43:00 PM
RECONVENED
Co-Chair Josephson reviewed that Amendment 49 pertained to
teacher incentive payments and reimbursements for national
board certification. The legislature had passed a law the
previous session as a way of commending and honoring the
skill required to get the award. The committee had
previously adopted an amendment [conceptual Amendment 1
(copy on file)] to reduce the amount of the grants from
$750,554 to $554,000. The committee was currently hearing
conceptual Amendment 2 to Amendment 49.
4:43:54 PM
Representative Bynum explained the conceptual amendment
would move the money out of the numbers section into the
language section of the bill and clearly outlined how the
money was to be spent. The money was first to reimburse
actual expenses, with the remaining balance to be made
available for national board certification incentive
payments authorized by AS 14.20.225(a), to be distributed
on a first-come, first-served basis.
Representative Galvin appreciated the maker of the
amendment working hard to align with the statute. She
highlighted that there may be changes necessary in the
future if the number of teachers utilizing the grants was
large. She described the individuals as the "black belt of
teachers." She wanted to ensure they were encouraging
individuals to become the highest and best teachers
possible. She believed the amendment was good in making
sure the legislature was being fiscally prudent. She
especially appreciated the word "reimburse" because it
helped to ensure it was not doing anything extra but
meeting the needs of nationally board certified teachers.
She supported the conceptual amendment.
Representative Hannan asked if moving the item from the
numbers section would result in a one-time increment as
opposed to a base increment. She noted the funding had
previously been in the base under the original Amendment
49. She noted that the dollar amount in the amendment had
been reduced because the number of teachers who would take
advantage of the funding was unknown and it changed
annually. She looked at the verbiage "to be distributed on
a first-come, first-served basis" on line 11 of the
conceptual amendment. She was concerned about a scenario
where first 100 teachers received the funding, but there
was not enough money to pay the 101st and 102nd applicants.
She wondered if the individuals would be excluded.
Alternatively, she wondered if the language meant that all
applicants would be paid, but in the order they applied.
4:47:32 PM
Co-Chair Josephson asked to hear from Mr. Painter.
Mr. Painter responded that how the language was written was
a policy call. He stated it could be written as an open-
ended estimate for however many people came forward with
reimbursements, which would enable anyone who applied to
receive the funds. Alternatively, if the number was fixed
at a certain amount, the department would need instruction
about what to do if the appropriated amount was not enough.
He elaborated that with the language "first-come, first-
served" the first people who applied would receive the full
reimbursement and others would not. Alternatively, the
funds could be prorated so everyone would have to come
forward for reimbursement and the department would decide
the number of people who received reimbursement and prorate
the funding. He suggested that if the committee did not
want to limit the funding, the appropriation would need to
be open-ended to encompass however much it may cost. He
remarked that it would be a very different policy call than
limiting the appropriation at a certain sum.
Representative Galvin relayed that her office had done more
research in the past couple of days to get an updated list
of qualifying individuals. The updated information showed
the number of individuals was currently 85 instead of 101.
She believed the $554,000 could accommodate the number of
individuals for the year; however, the number may need to
be adjusted if there were many more applicants in the
future.
Co-Chair Josephson believed language amendments were
revisited annually.
Representative Allard OBJECTED.
Representative Bynum provided wrap up on the amendment.
There had been a concern that with the increment in the
numbers section, the committee had been unable to specify
how the funding would be deployed. The intention of the
conceptual amendment was to ensure individuals who had
spent money on the certification would be reimbursed. He
explained if there was any money left over it went to the
incentive payment. He elaborated that the number had been
adjusted down by conceptual Amendment 1 and would assume to
cover all eligible individuals. He underscored that he
wanted to make sure the funding went to people who had
actually spent money first. He noted that the amendment
language was written in a way in order to have a defined
specific amount.
A roll call vote was taken on the motion.
IN FAVOR: Jimmie, Johnson, Galvin, Stapp, Allard,
Tomaszewski, Bynum, Hannan, Foster, Schrage, Josephson
OPPOSED: None
The MOTION PASSED (11/0). There being NO further OBJECTION,
conceptual Amendment 2 to Amendment 49 was ADOPTED.
4:52:11 PM
Representative Tomaszewski MOVED to ADOPT conceptual
Amendment 3. He highlighted Amendment 47 by Co-Chair
Schrage to remove $400,000 in general funds for the
Imagination Library. He suggested the funding could be used
for paying for Amendment 49. The conceptual amendment would
remove $400,000 from the Imagination Library.
Co-Chair Josephson OBJECTED.
Representative Tomaszewski provided wrap up on the
amendment. He recognized the importance of reading, but the
state was in a budget crunch. He stated the funding could
be used for many things in education funding.
4:53:30 PM
AT EASE
4:56:34 PM
RECONVENED
Representative Galvin addressed conceptual Amendment 3. She
was concerned about displacing early learning funds in any
way. The subcommittee had chosen to make an investment in
early learning. She relayed that Alaska had the lowest
investment in early learning in the nation. She stated the
readiness of kindergarten children was about 30.7 percent.
She detailed that when children arrived with 11 out of 13
of the skills they should have (e.g., vocabulary and
understanding of how to work as a group), they were one or
two years behind. She highlighted that 81 percent of
parents were reading more to children because of the
Imagination Library. The program was a tool for parents,
especially for low income families.
Representative Galvin discussed the benefits of the
Imagination Library. The program helped children to grow
their vocabulary. One of the major ways for children to
increase brain development was for parents to sit with them
with a book. Over 140 communities in Alaska were serving
families with books. She listed communities throughout the
state that were benefiting from the program. The funding
sources included funding from communities, foundation
funding, state, corporate, and other. She stressed that
investing in the program meant K-12 money would go further.
She emphasized that 70 percent of kindergarteners needed
extra help to get up to speed. She discussed the overly
large class sizes. There were not enough reading
specialists in Alaska. She stated that things were
happening that she did not support like pulling kids from
recess and lunch to gain the skills. She stressed it was
not fair to the children. The good work happening in
communities was not enough. She highlighted things like
expressive and receptive communication skills and cognitive
awareness gained through reading. The kindergarten
developmental profile looked at things like whether kids
could sustain attention to tasks and persist facing
challenges. She stressed that the time a child spent on a
parent's lap was essential.
Representative Galvin discussed that members around the
committee table likely bought books for their children, but
there were many families in the state where a book sent to
them by mail made all of the difference. She stressed that
social workers successful with families showed up with
extra gifts for the families. She stated it was how to
develop a relationship with the families in order to tell
them how to work with their kids. She noted that the
average literacy rate in Alaska was 5th grade. She stressed
the importance of loving time spent with children. Families
were reminded there were other ways to interface with
children when they received a book. She emphasized the cost
spent on education. The books were about lifting children's
spirits. She stated that Best Beginnings would like to
expand to more families. There were other things that
needed to be done in early learning. She provided examples.
She emphasized the Imagination Library was a proven
program.
5:07:35 PM
Representative Galvin continued her remarks. She stated
that 14,981 kids were enrolled in the program. There were
about 50,000 kids in the age range in Alaska. She
emphasized that children who participated in the program
had higher rates of kindergarten readiness. She provided a
definition of readiness. The finding was consistent across
student groups including English language learners, Native
students, and economically disadvantaged students. She
relayed that in 2016, 30 percent of Imagination Library
participants were Kindergarten ready compared to 25 percent
of similar students who did not participate. She believed
it mattered. She shared that teachers reported having to
deal with multiple grade levels at a time and had overly
large class sizes. She asked what was being done to the K-
12 system. She stressed that kids were being started off on
the wrong foot and the Imagination Library helped.
5:10:52 PM
Co-Chair Josephson remarked that several minutes earlier
Representative Galvin had stated she wanted to make sure
the committee's time was not wasted. He replied that she
had not wasted one moment of his time.
Representative Jimmie acknowledged the remarks by
Representative Galvin. She believed it was great what
Representative Galvin was doing. She knew they were both
mothers and grandmothers. She stated that reading was
important and it was not fair to kids when they were not
able to read at a good level. She referenced fighting for
funding for the Base Student Allocation (BSA) and stated it
was also not fair for students in her district who had
schools that were not functional, had no running water, and
broken windows. She shared that she had recently watched a
video from the Yupik School District, and it was facing
numerous challenges. She did not see it as the time to
expand the [Imagination Library] program, but to find funds
to improve school infrastructure. She stated that
Representative Galvin's heart was in the right place, and
she understood where she was coming from.
Representative Galvin replied that she would continue to
support Representative Jimmie's schools.
Representative Jimmie stated that she could not support
[the additional increment for Imagination Library] at the
current time.
Co-Chair Josephson asked if there was any dispute the
amendment reflected an increase of funding from the base.
Representative Allard believed Representative Tomaszewski's
conceptual amendment would cut $400,000 from the
Imagination Library to use for Amendment 49.
Representative Tomaszewski agreed. He believed the funding
for the Imagination Library increment had been added to the
base in subcommittee. He explained that the conceptual
amendment would not eliminate funding for the program, it
would remove the increase adopted in subcommittee.
Representative Allard stated that Representative Galvin's
remarks were a marathon speech. She had been leaning one
way, but the remarks resulted in her going in a different
direction. She stated the Dolly Parton Imagination Library
was a nonprofit used in 70 Alaskan communities. She stated
that because the state had magnificent libraries, she would
vote against increasing the funds for the program. She
remarked that everything she had read indicated that the
program was available to every child. She did not want to
"keep throwing bad money after bad." She stated that Alaska
spent more money on education for its children than any
other state. She supported conceptual Amendment 3.
5:15:03 PM
Co-Chair Schrage stated that it was a hard situation. He
stated the conceptual amendment was essentially an
amendment he had drafted but had not yet introduced. He had
not offered the amendment yet because he felt the committee
had made progress holding down its budget. He had shared
privately with committee members that Amendment 49 gave him
some concern, not because he did not believe in rewarding
teachers who went after the certifications.
Co-Chair Schrage underscored there was limited money, and
it was not possible to do all things. He stated that the
conceptual amendment helped to make Amendment 49 more cost
neutral. He stated it was not possible to do everything
despite the value of so many of the things. He could not
disagree with anything Representative Galvin said. He
agreed on the importance of reading, but if he wanted to be
able to adequately fund the K-12 education system and do
things like provide bonuses for teachers to get
certifications in order to be able to handle students in
their classes, it was necessary to allocate the scarce
resources the best he could and it involved making tough
choices. He relayed there was $320,000 in the base [for the
Imagination Library] and the subcommittee had more than
doubled the figure with an increment of $400,000. He did
not know it was the fiscal environment where the state
could afford to double the funding, especially if the
committee was going to fund reimbursements for
certifications. He stated it was a tough issue for him and
his family was signed up for the Imagination Library. He
did not want anyone to think he was dismissive of
Representative Galvin's position and that he did not see
the value in the program. The state had limited resources
to allocate to all of the important things.
Co-Chair Schrage would support the amendment in order for
the teachers to be able to get advanced training and be as
prepared as possible to handle difficult class sizes. He
remarked that teachers had students with many different
levels of reading comprehension and readiness for school.
He wanted to make sure teachers were prepared. He was
confident many students would still receive Dolly Parton
books in their early years. He supported the conceptual
amendment in order to be able to support the underlying
Amendment 49.
5:18:33 PM
Representative Johnson appreciated the Dolly Parton
foundation and what Dolly Parton had done. She highlighted
that the state put in $325,000 for the program and the
program provided matching funds. She stated that the
amendment would not take away books from any child. She
would support the conceptual amendment. She expressed her
appreciation for the program and was glad it had been
funded at the level currently in the base. She thought they
were doing good work. She appreciated Representative
Galvin's impassioned speech, but she clarified that the
committee was not cutting out existing funds for the
program, it was removing the addition that doubled the
funding.
5:20:02 PM
Representative Bynum had not been sure how removing the
funding would impact the [Imagination Library] program, but
currently there were 20,000 participants in the program
according to Dolly Parton's website. He wondered about the
number of kids impacted and whether the program was being
removed altogether. He understood they were not removing
the program and the amendment would remove an increase. He
did not know the accurate number of participants, but the
Dolly Parton website listed Alaska's number at 20,000. He
thought it sounded like a robust program in Alaska, and he
agreed with many of the other committee members' remarks.
He would support the conceptual amendment.
Representative Tomaszewski provided wrap up on the
amendment. He supported the Imagination Library, but he did
not support doubling the increment in a year where the
legislature was searching for money for important things
like education, public safety, and all of the other
departments. He thanked Representative Galvin for her
impassioned speech on the positive aspects of the program.
He believed the committee needed to use its fiduciary
responsibility and use it wisely. He supported the
amendment.
A roll call vote was taken on the motion to adopt
conceptual Amendment 3 to Amendment 49.
IN FAVOR: Allard, Tomaszewski, Bynum, Johnson, Jimmie,
Stapp, Schrage
OPPOSED: Hannan, Galvin, Foster, Josephson
The MOTION PASSED (7/4). There being NO further OBJECTION,
conceptual Amendment 3 to Amendment 49 was ADOPTED.
Co-Chair Josephson stated that the conceptual amendment
effectively adopted Amendment 47 but would be treated as
part of Amendment 49.
5:23:13 PM
Representative Galvin heard members' concerns about the
budget and understood. She also understood that with the
$400,000 [added to the Imagination Library increment in
subcommittee] she had been trying to reach an additional
10,000 kids out of the 50,000 total. She shared that there
had been no inflationary increase for the program. She
MOVED to ADOPT conceptual Amendment 4 that would remove
$200,000 from the Imagination Library instead of $400,000
to go towards Amendment 49.
Representative Allard and Representative Stapp OBJECTED.
Co-Chair Josephson clarified there had been three previous
conceptual amendments to Amendment 49. He stated that the
conceptual amendment would add $200,000 to the Imagination
Library.
Representative Galvin highlighted that over the past couple
of days the committee had been doing things like paying
$1.1 million for energy ratings that did not yet need to be
paid in one area of the state. She stressed that the
increment in the conceptual amendment was not for her
district; it was for Alaska's children. The amendment would
reduce the increment to $200,000 to be sensitive to
concerns around being fiscally responsible. She asked the
committee to consider adding the increment with recognition
there had been no inflationary additions. She noted
inflationary additions had been added for most other
departments and programs.
A roll call vote was taken on the motion.
IN FAVOR: Galvin, Hannan, Jimmie, Bynum, Schrage, Foster,
Josephson
OPPOSED: Johnson, Stapp, Allard, Tomaszewski
The MOTION PASSED (7/4). There being NO further OBJECTION,
conceptual Amendment 4 to Amendment 49 was ADOPTED.
5:27:14 PM
Co-Chair Josephson noted there had been a series of
amendments adopted to Amendment 49.
Representative Johnson asked for an explanation of the
amendment as amended.
Co-Chair Josephson explained that Amendment 49 was about a
bill passed the previous session carried by Representative
Rebecca Himschoot. He stated it was an unfunded law and the
committee was trying to provide the funding. There was an
amendment adopted to reduce the $750,000 to $554,000.
Additionally, conceptual amendments had been adopted to
decrease funding added for the Imagination Library by
$200,000. There was also an amendment by Representative
Bynum that identified how the monies for the Representative
Himschoot bill would be paid.
Representative Allard OBJECTED.
A roll call vote was taken on the motion.
IN FAVOR: Jimmie, Hannan, Stapp, Galvin, Bynum, Johnson,
Tomaszewski, Foster, Schrage, Josephson
OPPOSED: Allard
The MOTION PASSED (10/1).
There being NO further OBJECTION, Amendment 49 was ADOPTED
as amended.
5:29:51 PM
Co-Chair Josephson asked if there were other amendments
from committee members.
Representative Stapp stated that he did not have any
additional amendments. He noted that some items were
tabled, but he did not feel the need to make a motion to
remove items from table. He assumed the majority could un-
table any items it may want to take up.
Representative Bynum MOVED to ADOPT Amendment 51 (copy on
file):
Agency: Environmental Conservation
Appropriation: Water
Allocation: Water Quality Infrastructure
Transaction Details
Title: Add Funding for Clean Water Act Section 404
Assumption
Section: Section 1
Type: Inc
Line Items (Amounts are in thousands)
Personal Services: 750.3
Travel: 34.0
Services: 625.8
Commodities: 40.0
Capital Outlay: 0.0
Grants: 0.0
Miscellaneous: 0.0
Total: 1,450.1
Positions
Permanent Full-Time: 5
Permanent Part-Time: 0
Temporary: 0
Funding (Amounts are in thousands)
1004 Gen Fund 1,450.1
Explanation
Add Funding for the Dept of Environmental Conservation
to assume the duties of permitting under section 404
of the clean water act from the Army Core of
Engineers.
Representative Stapp OBJECTED.
Representative Bynum explained the amendment that would add
$1.450 million for the Department of Environmental
Conservation (DEC) to assume the duties of permitting under
section 404 of the Clean Water Act from the U.S. Army Corps
of Engineers. He detailed that the particular section of
the 404 Clean Water Act dealt with the dredging of areas
like ports and harbors often necessary to get large ships
into ports. The section also dealt with the filling of
wetlands for the various reasons. He stated the issue was
important to Alaska. He spoke to the need to ensure there
was enforcement uniformity by the Army Corps of Engineers
within Alaska. He highlighted that Alaska was very
different than places like New Jersey, Texas, and other
places in the U.S. where the Army Corps of Engineers had
jurisdiction. He stated it was important because Alaska was
made up of approximately 43.6 percent of wetlands,
accounting for 63 percent of all the U.S. wetlands. One of
the things that had been a theme was ensuring Alaska had
some level of self-determination.
Representative Bynum remarked that the Army Corps of
Engineers was an outstanding organization that he had been
a member of in the past. He noted that when he had been a
member there had been a joke that the word bureaucracy was
invented by the Army Corps of Engineers. He noted it was
not meant in a negative way. He thought it was an
opportunity for Alaska to have self-determination over its
permitting and fill for wetlands for construction. He
asserted it was a major issue for his district and many
regions around the state to have a bit of autonomy to
better utilize the permitting process and do the work
responsibly. He suggested that if Alaska was to take over
the duties currently assigned to the Army Corps of
Engineers, it would mean the state could adopt better
regulations that were more tailored to Alaska, and it would
be able to achieve better outcomes for things like housing
development. He stressed that affordable housing was a very
important part of the overall economic need in Alaska. He
stated that regulatory oversight from the federal
government stifled the state's ability to do that.
5:33:45 PM
Representative Hannan opposed the amendment. She stated
that every dime of the current cost associated with
Alaska's 404 permitting was borne by the federal
government. She stressed that the $1.45 million would just
be the beginning of a phased in approach that would take
three years to reach a cost of $6 million to $8 million
annually and require about 30 positions. She believed it
was a ridiculous thing to add given the state's dire fiscal
predicament and the fact that the scope of federal change
was present. She noted that the Army Corps of Engineers who
worked on Alaska's 404 permitting were Alaskans working in
Alaska. She highlighted that no other state had
successfully achieved any savings by implementing 404
permitting. She noted that most states had given primacy
back to the federal government. She believed taking on a
new duty with a large ticket price, which currently cost
the state nothing, was fiscally irresponsible. He urged
members to vote against the amendment.
5:35:08 PM
Representative Johnson supported the amendment. She stated
that Alaska currently had an opportunity it had not had for
a number of years. She stressed the state had been fighting
and fighting the federal government. She emphasized that it
gave the state the chance to potentially be in charge of
its own destiny instead of using fiscal responsibility as
an excuse. She had seen a lot of tantrum throwing and
discussion about fiscal responsibility but she had not seen
a whole lot of it based on actions by the committee. She
emphatically supported the amendment for Alaska to have
primacy and its own oversight. She believed it was
tremendously important for the future of Alaska and its
children. She underscored that having a job, home, and
income was a way to make a better future for Alaska's
children. She stressed that she "could not sit here and
listen to this any longer." She supported the amendment and
believed it was the right thing to do.
5:36:37 PM
Co-Chair Josephson did not think Representative Johnson had
impugned anyone and he did not believe there had been any
tantrums either.
Representative Stapp supported the amendment. He stated
that most permits that were denied were related to
wetlands. He believed the state should assume primacy over
wetlands 404 permits, which would help develop all of the
projects desired in Alaska, help deploy all of the
Infrastructure Investment and Jobs Act (IIJA) money the
state received, and help employ all the projects for
Broadband Equity, Access, and Deployment (BEAD) grants. He
noted that Florida's costs had increased because they
tripled the number of permits issued. He believed the only
way Alaska would survive was if it was able to grow its way
out of the problem with resource development. He
highlighted that everywhere the change had been implemented
had seen increased development. He thought it was a very
good thing. He supported increased development, which would
result in more money in state coffers in order to pay for
things. He pointed out the session was half over, and the
legislature had not done anything substantive to try to
move Alaska forward. He reiterated his support for the
amendment.
Representative Tomaszewski supported the amendment. He
remarked on the program's importance and thought it was
necessary for legislators to think about what they wanted
the state's future to look like. He asked if they wanted a
federal government telling Alaska how to develop its
resources. Alternatively, he wondered if they wanted to
take Alaska's destiny in their own hands. He believed in
the latter option. He believed the state needed to
capitalize on tremendous opportunities coming in the
future.
5:38:49 PM
Co-Chair Schrage would not disagree there may be some merit
in the state taking over 404 primacy in the future. He
recalled when the issue came before him the first time in
the 32nd legislature. He could see some merit in having
Alaskans manage their wetlands. However, his consistent
question was about how the state would pay for it. He
continued to receive 10-year plans from the governor
showing the state continuing to run into the red. He
thought the incentive to receive 404 primacy had decreased
given that the federal government paid everything for the
work at present and there was a federal government in place
that was much more supportive of resource development. He
highlighted that the state's track record was not a good
one when it came to the administration of services or any
of its state duties. He heard complaints from the business
industry and resource development industry when it came to
the time it took for the state to permit things and to
renew business licenses. He pointed out that basic state
functions were currently under strain and he was not
confident it would work out well for Alaska to take on more
responsibility. He thought if the state took 404 primacy it
could potentially result in worse performance when it came
to permitting projects. He remained open to the idea but
would not support it at present.
Co-Chair Josephson stated that the majority caucus was
passionately opposed to the idea for fiscal and other
reasons. He agreed with Co-Chair Schrage that the federal
administration would do what it wanted with the Army Corps
of Engineers. He believed the price tag exceeded $10
million. He would vote in opposition to the amendment.
5:41:55 PM
Representative Bynum provided wrap up on the amendment. He
stated that although the employees working with the Army
Corps of Engineers in Alaska may be long-term Alaskans, it
did not mean they were not operating under the rubric of
"what is the Army Corps of Engineers." He had worked with
the organization for 10 years and assured members the
organization did not move swiftly on things like dredging,
river operations, and dealing with wetland issues. He
recognized the organization was thorough and provided a
good product, but it was not swift. He remarked that it was
problematic when trying to get things done.
Representative Bynum stressed that the state would pay for
the expense with additional development in Alaska. He
underscored that every day a project was delayed was a lost
opportunity. He remarked that legislators talked about
school issues, being able to buy groceries, and being able
to heat homes. He stated that one of the major driving
factors for doing those things in his communities was the
cost of having a home. He stated that the ability to build
housing would bring Coast Guard and National Oceanic and
Atmospheric Administration (NOAA) families. He stressed
that in order to ensure utilities had employees and there
were schoolteachers coming to Alaskan communities, it was
necessary to make sure they had housing. He emphasized that
hurrying the process meant communities would become more
prosperous faster. He was not advocating for bypassing
environmental standards or cutting corners, but he thought
Alaskans could do the work better.
Representative Bynum was tired of seeing his communities
suffer from the high cost of housing because they could not
get permitting for wetlands. He pointed out that it was not
possible to step off the road in Ketchikan or Wrangell
without stepping in wetlands. He stressed that for housing
and development in oil, gas, mining, and timber, the state
needed access locally. He shared that when he was a utility
employer, the company operated at about 65 percent of
effective staffing. He shared that he would put out an
advertisement for an engineer and they would come to town
and look at the cost of housing and leave. He stated it was
the same situation for schoolteachers looking to come to
Alaska. The Coast Guard did not want to bring families to
Ketchikan because of the cost of housing. He emphasized
that all of the state's industries were impacted by the
situation. He listed other issues facing the state such as
lack of childcare and declining student enrollment.
Representative Bynum stressed that 404 primacy could mean
flourishing industries, reduced cost in power, more
affordable homes, and increased student enrollment. He
argued that it all came down to the state's ability to
develop on its own terms. He strongly supported the
amendment.
A roll call vote was taken on the motion.
IN FAVOR: Tomaszewski, Bynum, Stapp, Johnson, Allard
OPPOSED: Hannan, Jimmie, Galvin, Schrage, Foster, Josephson
The MOTION to adopt Amendment 51 FAILED (5/6).
5:47:35 PM
Representative Stapp MOVED to ADOPT Amendment 12 (copy on
file):
Agency: Fund Transfers
Appropriation: General Fund (Revenue)
Allocation: General Fund (Revenue)
Transaction Details
Title: 4.85% Draw from Earnings Reserve Account
Section: Language
Type: Lang
Line Items (Amounts are in thousands)
Personal Services: 0.0
Travel: 0.0
Services: 0.0
Commodities: 0.0
Capital Outlay: 0.0
Grants: 0.0
Miscellaneous: 0.0
0.0
Positions
Permanent Full-Time: 0
Permanent Part-Time: 0
Temporary: 0
Funding (Amounts are in thousands)
Explanation
This amendment represents a 4.85% draw from the
Percent of Market Value (POMV) from the earnings
reserve account. The reduction is in the amount
appropriated to the general fund.
Co-Chair Schrage OBJECTED for discussion.
Representative Stapp explained that the amendment would
reduce the percent of market value (POMV) draw taken from
the Permanent Fund Earnings Reserve Account (ERA). He
detailed that the defined benefits bill [HB 78] had a five-
year smoothing average in which Alaska Retirement
Management Board (ARMB) was required to make a decision in
the event the plan was unfunded. He elaborated that it
would mean ARMB would either have to take away employee
retirements or post-retirement pension adjustment (PRPA)
payments, or increase contributions for existing employees
in order to fund the liability. He explained that if the
smoothing average was applied to the past five years of the
POMV draw, the fund had performed less than 5 percent plus
inflation. He asked whether the legislature would respond
as if it expected ARMB to respond and take action or
whether the legislature would take no action and continue
taking 5 percent from the fund despite lower returns in the
past five years.
Representative Hannan opposed the amendment. She believed
the amendment pertained to the next year's draw. She stated
that if it was a bill addressing the POMV draw in the
statute she would probably be in favor for the reasons
Representative Stapp described. However, the change in the
amendment would only go into the operating budget for one
year and would not change the overall fiscal policy.
Representative Galvin agreed with statements made by
Representative Hannan. She would like to have a
conversation with the Department of Revenue. She thought
the proposal was a very good idea and something the
legislature should consider down the road with a bigger
conversation.
5:51:02 PM
Co-Chair Josephson saw some fiscal wisdom in the amendment.
He stated that experts talked about draws of 4.25 and 4.5
percent. Unfortunately, he could not consider reducing the
draw from 5 percent.
Representative Stapp WITHDREW Amendment 12.
5:51:31 PM
Co-Chair Josephson RECESSED the meeting until 7:30 p.m.
[Note: the meeting never reconvened.]
HB 53 was HEARD and HELD in committee for further
consideration.
HB 55 was HEARD and HELD in committee for further
consideration.
5:52:08 PM
RECESSED
ADJOURNMENT
The meeting was adjourned at 5:52 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 78 AML - HFIN Employer Considerations of State-Sponsored Pensions.pdf |
HFIN 4/2/2025 1:30:00 PM |
|
| HB 78 AML 2025-04-Actuarial-Amortization-Policy.pdf |
HFIN 4/2/2025 1:30:00 PM |
HB 78 |
| HB 78 DRB Tiers & Unfunded Liability April 2, 2025.pdf |
HFIN 4/2/2025 1:30:00 PM |
HB 78 |