02/12/2018 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB304 | |
| HB306 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 304 | TELECONFERENCED | |
| *+ | HB 306 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
February 12, 2018
3:17 p.m.
MEMBERS PRESENT
Representative Sam Kito, Chair
Representative Adam Wool, Vice Chair
Representative Andy Josephson
Representative Louise Stutes
Representative Chris Birch
Representative Gary Knopp
Representative Colleen Sullivan-Leonard
MEMBERS ABSENT
Representative Mike Chenault (alternate)
Representative Bryce Edgmon (alternate)
COMMITTEE CALENDAR
HOUSE BILL NO. 304
"An Act relating to the Alaska microloan revolving loan fund and
loans from the fund."
- HEARD & HELD
HOUSE BILL NO. 306
"An Act relating to disbursement options under the Public
Employees' Retirement System of Alaska and the Teachers'
Retirement System of Alaska for participants in the defined
contribution plan; and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 304
SHORT TITLE: MICROLOAN REVOLVING FUND & LOANS
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/24/18 (H) READ THE FIRST TIME - REFERRALS
01/24/18 (H) L&C, FIN
02/12/18 (H) L&C AT 3:15 PM BARNES 124
BILL: HB 306
SHORT TITLE: PERS/TERS DISTRIBUTIONS
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/24/18 (H) READ THE FIRST TIME - REFERRALS
01/24/18 (H) L&C, FIN
02/12/18 (H) L&C AT 3:15 PM BARNES 124
WITNESS REGISTER
BRITANY CIONI-HAYWOOD, Director,
Division of Economic Development (DED)
Department of Commerce, Community & Economic Development (DCCED)
Juneau, Alaska
POSITION STATEMENT: Presented HB 304 on behalf of House Rules
Committee by request of the governor.
TIM DILLON, Executive Director
Kenai Peninsula Economic Development District
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 304.
NOLAN KLOUDA, Director
University of Alaska Center for Economic Development
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 304.
TRAVIS LEWIS, Vice President
Alaskans for Alaska
Hoonah, Alaska
POSITION STATEMENT: Testified in support of HB 304.
LESLIE RIDLE, Commissioner
Department of Administration (DOA)
Juneau, Alaska
POSITION STATEMENT: Introduced HB 306 on behalf of the House
Rules Committee by request of the governor.
KATHY LEA, Deputy Director
Division of Retirement and Benefits
Department of Administration (DOA)
Juneau, Alaska
POSITION STATEMENT: Presented HB 306 on behalf of the House
Rules Committee by request of the governor with the use of a
PowerPoint presentation.
ROB JOHNSON, Chair
Alaska Retirement Management Board
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 306.
NORM WEST
Alaska Retirement Management Board
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 306.
ACTION NARRATIVE
3:17:12 PM
CHAIR SAM KITO called the House Labor and Commerce Standing
Committee meeting to order at 3:17 p.m. Representatives Stutes,
Knopp, Josephson, Wool and Kito were present at the call to
order. Representatives Birch and Sullivan-Leonard arrived as
the meeting was in progress.
HB 304-MICROLOAN REVOLVING FUND & LOANS
3:18:48 PM
CHAIR KITO announced that the first order of business would be
HOUSE BILL NO. 304, "An Act relating to the Alaska microloan
revolving loan fund and loans from the fund."
3:19:05 PM
BRITANY CIONI-HAYWOOD, Director, Division of Economic
Development (DED), Department of Commerce, Community & Economic
Development (DCCED), presented HB 304 on behalf of the House
Rules Committee by request of the governor. She discussed the
microloan revolving fund and some proposed changes. She said
new businesses were responsible for about 80 percent of new jobs
across the United States. She underlined that new businesses
often have trouble securing standard loans. The fund was
created by the legislature in 2012 to promote economic
development in Alaska by helping small businesses access capital
for Alaska residents.
MS. CIONI-HAYWOOD continued to describe the loan. She stated
the maximum amount was $35,000 and $70,000 for two people. She
said loan requests of $35,000 or more require a letter of denial
from the bank stating reasons for denial. She added loans are
for 6 years and interest rates are fixed at the time of
approval. She said that other non-state resources must be
committed for the use of any project for which the loan will be
used. She added the changes in the proposed bill correct for
the lower tier for the bank denial from $34,999 to $35,000,
increase maximum loan term from 6 years to 15 years, and
increase interest rate calculation by one percentage point to
put the loans in line with other state loans programs at prime
plus 2 percent.
3:22:28 PM
MS. CIONI-HAYWOOD stated the current loan terms do not
incentivize businesses to take risks. The proposed changes
would facilitate start-ups by adjusting monthly payments and due
to the relatively low loan amount it was expected that the loans
would not impact the private banking sector. She shared the
hope that growing a small business sector would create more
viable business that can be serviced by private institutions in
the future.
3:23:39 PM
REPRESENTATIVE BIRCH asked why the state would want to invest in
something that a bank would not supply with a loan.
MS. CIONI-HAYWOOD answered that the loan helps people with no
established credit. She explained that the state examines
different criteria. She specified that all the loans are
collateralized.
REPRESENTATIVE BIRCH asked about the pool from which the loans
are drawn.
MS. CIONI-HAYWOOD described which people would be appropriate
recipients for the loan and what kind of businesses were likely
to be involved.
3:27:44 PM
REPRESENTATIVE KNOPP asked for confirmation that the minimum
amount without a bank letter of denial was $35,000.
MS. CIONI-HAYWOOD answered that was the current minimum and no
change was present in the proposed bill.
REPRESENTATIVE KNOPP remarked that 4 percent over 15 years
stands out as low interest rate. He asked about changes in the
interest rate over time.
MS. CIONI-HAYWOOD answered that interest rates are set in
statute at 2 percent plus prime.
3:29:48 PM
REPRESENTATIVE SULLIVAN-LEONARD asked about the current balance
of the fund.
MS. CIONI-HAYWOOD answered the current cash amount available for
lending was $2.27 million.
REPRESENTATIVE SULLIVAN-LEONARD said she thought it was a lot of
risk for the state. She asked about working with banks to
assist people to transition to a conventional loan. She asked
whether the state loan affected borrowers' credit rating.
MS. CIONI-HAYWOOD answered that the loan did not affect credit
ratings. She said the goal is to grow lenders out of the
program and towards private lending.
3:32:01 PM
REPRESENTATIVE STUTES asked how many loans had been issued and
what the success rate was on the loans.
MS. CIONI-HAYWOOD answered that currently 33 applications had
been received, of which 14 were approved. The principal
outstanding was $93 thousand. She added the department wanted
to see the loan fund better utilized. She commented that due to
the repayment schedule, some borrowers were not willing to
accept the risk.
REPRESENTATIVE STUTES asked about the rate of success in
repayment.
MS. CIONI-HAYWOOD answered the current delinquency rate was 6.1
percent.
REPRESENTATIVE WOOL asked how much collateral was required to
receive the loan.
MS. CIONI-HAYWOOD answered that collateral can vary from the
equipment for which the loan is being sought or an asset such as
a car or home.
3:35:05 PM
REPRESENTATIVE WOOL asked what the current maximum loan was.
MS. CIONI-HAYWOOD answered the current maximum loan was $34,999
for one person and $70,000 for two people.
REPRESENTATIVE WOOL asked what would change in the proposed
bill.
MS. CIONI-HAYWOOD answered the amount would change from $34,999
to $35,000 and the interest rate would change to prime plus 2
percent rather than prime plus 1 percent.
3:36:26 PM
REPRESENTATIVE KNOPP asked whether the interest rate would
fluctuate with prime.
MS. CIONI-HAYWOOD answered the interest rate was fixed but could
fluctuate when the Federal Reserve increases the prime rate.
She added the rates were set quarterly.
REPRESENTATIVE KNOPP asked whether an individual could be
eligible for more than one loan.
MS. CIONI-HAYWOOD answered they could be eligible for one loan
per project.
3:37:41 PM
REPRESENTATIVE WOOL asked how the program is advertised.
MS. CIONI-HAYWOOD answered there is some community outreach but
that it is constrained by travel limitations. She added there
are different community entities that the department works with
to reach out to potential loan participants.
3:40:04 PM
CHAIR KITO opened public testimony on HB 304.
3:40:23 PM
TIM DILLON, Executive Director, Kenai Peninsula Economic
Development District, testified in support of HB 304. He stated
his organization was frequently approached for information on
small business loans. He spoke to the proposed improvements to
the current microloan revolving loan program. He said his
organization only had enough in their program for six or seven
loans, and the state loan program would help them direct small
businesses to loan opportunities.
3:43:42 PM
REPRESENTATIVE BIRCH asked about Mr. Dillon's experience with
loans, collateral, risk, and repayment.
MR. DILLON answered his organization has had a lot of success.
He mentioned the Kenai River Brewing Company and said his
program had made the loan for the brewery's canning machine. He
stated his board contains a committee which only looks at loans.
He specified his organization issued a maximum loan of $25,000.
He reiterated that any additional help would be welcome.
3:46:04 PM
REPRESENTATIVE KNOPP asked whether Mr. Dillion had ever referred
clients to the state microloan revolving loan program.
MR. DILLON answered in the affirmative. He added that when he
was city manager of Seldovia he had directed two businesses to
the loan program.
3:47:33 PM
NOLAN KLOUDA, Director, University of Alaska Center for Economic
Development, testified in support of HB 304. He spoke to the
importance of creating new jobs in Alaska. He said new
businesses are responsible for nearly 100 percent of net
employment growth in Alaska each year. He said businesses with
fewer than 5 employees create around 3,600 jobs per year. He
added around 60 percent of new business owners use their
personal savings to start out. He spoke to the risk element.
He said that small loans do not tend to be very profitable for
banks, which causes banks to "shy away" from smaller loans.
3:51:05 PM
REPRESENTATIVE KNOPP asked about concerns regarding the success
rate of new start-up businesses.
MR. KLOUDA answered that it is something that has to be taken
into account. He stated loans have terms and conditions which
can mitigate major risk factors. He said cash flow, collateral,
and other risk factors are examined by finance staff. He said
the risk factor was not particularly worrisome.
3:52:57 PM
TRAVIS LEWIS, Vice President, Alaskans for Alaska, testified in
support of HB 304. He stated his organization and his family
and friends were direct beneficiaries of the state program. He
brought up the issue of residency and said he thought it should
be stricter. He spoke to family businesses and gave the example
of inherited fishing boats or businesses that need to be updated
in order to comply with new regulations. He pointed out that
many businesses were the continuation of old businesses rather
than new businesses. He said small businesses in rural areas
were trying to keep winter jobs available. He reiterated his
concern that people were applying for the loans who only spent a
few months a year in the state, taking opportunities from local
people.
CHAIR KITO held over HB 304.
3:56:35 PM
The committee took an at-ease from 3:56 p.m. to 3:57 p.m.
HB 306-PERS/TERS DISTRIBUTIONS
3:57:36 PM
CHAIR KITO announced that the final order of business would be
HOUSE BILL NO. 306, "An Act relating to disbursement options
under the Public Employees' Retirement System of Alaska and the
Teachers' Retirement System of Alaska for participants in the
defined contribution plan; and providing for an effective date."
3:57:50 PM
LESLIE RIDLE, Commissioner, Department of Administration (DOA),
introduced HB 306 on behalf of the House Rules Committee by
request of the governor. She specified that the request had
originally come from the Alaska Retirement Management Board
(ARMB), which has a committee that helps state employee with
Tier IV retirement plans to prepare for retirement.
3:59:23 PM
KATHY LEA, Deputy Director, Division of Retirement and Benefits,
Department of Administration (DOA), presented HB 306 on behalf
of the House Rules Committee by request of the governor. She
presented a PowerPoint entitled, "HB 306 / SB 159. PERS/TRS
Disbursement Options," [in committee packet]:
MS. LEA spoke to slide 3, "The Issue":
The PERS/TRS DCR (Tier IV) plans use the statutes as
the plan document.
? Any changes to modernize options or to meet new
Internal Revenue requirements require a statutory
change.
? Statutory changes can take several sessions to
accomplish, if at all.
? Meanwhile, participants needs are being unmet.
? This bill would give the DCR plans the same
flexibility as the SBS and Deferred Compensation
plans.
MS. LEA went on to address slide 4, "PERS/TRS DCR Needs":
? The PERS/TRS DCR plans have vested employees who are
retiring and need help facing the challenges of
retirement.
? The ARMB Defined Contribution Subcommittee is
exploring options that will help participants:
o not outlive their retirement savings,
o address purchasing power over time, and
o protect against market uncertainty.
MS. LEA closed the presentation with slide 5, "Transparent
Process for Change":
? Discussions regarding disbursement options are done
in a public forum during the selection process.
? Participants and groups representing participants
will have input during subcommittee and ARMB committee
meetings.
? The process remains public and transparent, but
allows for faster adoption of needed change.
? All interested parties are notified of any changes
through the regulation process.
4:02:44 PM
REPRESENTATIVE JOSEPHSON asked about the terms of Tier IV
retirement.
MS. LEA answered that in the Defined Contribution Retirement
(DCR) plan, an employee is eligible to full retirement
disbursement of the state contribution after 5 years of
employment. She explained that before the 5th year there is a
staggered table for disbursement so that at 2 years the employee
receives 25 percent of the state contributions; at 3 years the
employee receives 50 percent; at 4 years receives 75 percent;
and at 5 years the employee receives 100 percent. She specified
that in the DCR plans there is no real retirement, only a
disbursement of funds. She underlined there is a tax penalty of
10 percent for early withdrawal before age 59 and a half. She
said currently a lump sum disbursement, a periodic payment, or
various annuity options are the only options available.
REPRESENTATIVE JOSEPHSON asked what the Alaska Retirement
Management Board (ARMB) might add.
MS. LEA answered that an ARMB subcommittee has tasked the
Treasury Division and the Division of Retirement and Benefits
with exploring options. She stated the group had recently
reviewed eight different providers for efficacy and retirement
security. She said the plan options fell into three categories:
a better annuity, a guaranteed lifetime withdrawal product, and
a qualified lifetime annuity that sets aside up a portion of the
money to begin to pay out at age 80.
4:07:38 PM
REPRESENTATIVE KNOPP asked what the state program can do that
free markets cannot.
MS. LEA answered the plan is not looking to make money and can
offer the plan with lower costs, so can provide members with
more money for retirement.
MS. RIDLE added there would be a private sector element
involving contracts, but the state can get better rates.
REPRESENTATIVE KNOPP said he wondered about the true savings
involved.
4:11:59 PM
REPRESENTATIVE BIRCH asked whether the state is empowered to set
up a Roth IRA.
MS. RIDLE answered that for government defined contribution
plans currently only deferred compensation plans are eligible
and the state has a Roth option in its plan.
REPRESENTATIVE SULLIVAN-LEONARD asked about a fiscal note for
changes in the program.
MS. LEA answered there is a fiscal note and there is no fiscal
impact for HB 306. She explained the option are left to the
participant to choose and therefore pay additional fees.
REPRESENTATIVE SULLIVAN-LEONARD asked for confirmation that the
costs are paid by individual who sign up for the options.
4:14:26 PM
MS. LEA answered in the affirmative.
CHAIR KITO asked about the motivation behind putting options in
statute.
MS. LEA said she could not speak to legislative intent. She
added she did work in the division at the time and the division
recommendation was not to put them in statute.
4:15:52 PM
REPRESENTATIVE JOSEPHSON asked for confirmation that the
descriptive language that would be deleted in HB 306 was not
recommended by the department but had been put in by
legislators.
MS. LEA answered in the affirmative. She added that in
discussions during the drafting process, the desire was to
pattern the plan after the SBS disbursement options. She said
the difference was that statute for SBS and for DCR only
authorized the backbone of plan, while all other provisions are
in the plan document, which is required by IRS. She stated the
difference with the DCR plans is that they use statute as the
plan document. She explained that while other plans are nimble
if changes are needed, DCR plans are not.
4:17:48 PM
ROB JOHNSON, Chair, Alaska Retirement Management Board (ARMB),
testified in support of HB 306. He stated the ARMB had heard
that greater flexibility was preferred for retirees. He
confirmed that the legislature had indeed looked to other
sources for language and utilized SBS and deferred compensation
language. He added that in time, it became clear that greater
options were available at no additional cost to the state. He
said ARMB agreed with the adoption of the proposed bill.
4:20:27 PM
REPRESENTATIVE SULLIVAN-LEONARD asked Mr. Johnson to expand on
the portability of retirement plans and whether there was a
trend of employees not staying in the state system for more than
five years.
MR. JOHNSON said he has not looked at the studies, but he had
heard that the change to the defined contribution plan had
implications for public employee and teacher retention.
4:22:07 PM
NORM WEST, Alaska Retirement Management Board, testified in
support of HB 306. He stated he had over 30 years of experience
as a trustee and administrator of employee benefit plans. He
added he had seen overseen the management of portfolios worth
over $100 million. He said he had seen many changes in
retirement plans over the years. He spoke to defined
contribution plans which do not offer a particular benefit and
pass the risk of the investment to the participants. He said
this was the major change from defined benefit plans. He stated
his support for the proposed bill. He underlined the changes in
HB 306 were only about methods of disbursement.
MR. WEST explained that the products are essentially structured
investment products which allow for periodic payment. He
underlined there was no risk to the state and that participants
would need to move their payments into a different plan to avoid
taxation of the lump sum. He surmised that the statutory
limitations had been an oversight.
4:29:29 PM
CHAIR KITO opened public testimony on HB 306. Upon ascertaining
that no one was available to testify, he said he would leave
public testimony open for HB 306.
CHAIR KITO held over HB 306.
4:30:39 PM
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
4:31 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB304 Fiscal Note-INV 1.30.18.pdf |
HL&C 2/12/2018 3:15:00 PM |
HB 304 |
| HB304 Transmittal Letter 1.30.18.pdf |
HL&C 2/12/2018 3:15:00 PM |
HB 304 |
| HB306 Fiscal Note DOA RNB 1.16.18.pdf |
HL&C 2/12/2018 3:15:00 PM |
HB 306 |
| HB304 ver A 1.30.18.PDF |
HL&C 2/12/2018 3:15:00 PM |
HB 304 |
| HB304 Sectional Analysis ver A 1.30.18.pdf |
HL&C 2/12/2018 3:15:00 PM |
HB 304 |
| HB304 Fiscal Note DCCED DED 1.22.18.pdf |
HL&C 2/12/2018 3:15:00 PM |
HB 304 |
| HB306 Version A.pdf |
HL&C 2/12/2018 3:15:00 PM |
HB 306 |
| HB306 Governor Transmittal Letter PERS & TRS 1.29.18.PDF |
HL&C 2/12/2018 3:15:00 PM |
HB 306 |
| HB306 Sectional Analysis 1.29.18.pdf |
HL&C 2/12/2018 3:15:00 PM |
HB 306 |
| HB306 Presentation (H)L&C 2.14.18.pdf |
HL&C 2/12/2018 3:15:00 PM |
HB 306 |