Legislature(2015 - 2016)BARNES 124

03/30/2015 03:15 PM LABOR & COMMERCE

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Audio Topic
04:09:34 PM Adjourn
03:17:27 PM Start
03:17:41 PM HB47
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ HB 47 PERS CONTRIBUTIONS BY MUNICIPALITIES TELECONFERENCED
Heard & Held
                    ALASKA STATE LEGISLATURE                                                                                  
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                         
                         March 30, 2015                                                                                         
                           3:17 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Kurt Olson, Chair                                                                                                
Representative Shelley Hughes, Vice Chair                                                                                       
Representative Jim Colver                                                                                                       
Representative Gabrielle LeDoux                                                                                                 
Representative Cathy Tilton                                                                                                     
Representative Andy Josephson                                                                                                   
Representative Sam Kito                                                                                                         
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Mike Chenault (alternate)                                                                                        
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 47                                                                                                               
"An  Act  requiring  each municipality  with  a  population  that                                                               
decreased  by more  than 25  percent between  2000 and  2010 that                                                               
participates  in  the  defined  benefit retirement  plan  of  the                                                               
Public Employees'  Retirement System  of Alaska to  contribute to                                                               
the system an amount calculated by  applying a rate of 22 percent                                                               
of the  total of all  base salaries  paid by the  municipality to                                                               
employees  of the  municipality  who are  active  members of  the                                                               
system during  a payroll  period; reducing  the rate  of interest                                                               
payable by  a municipality  with a  population that  decreased by                                                               
more than 25 percent between 2000  and 2010 that is delinquent in                                                               
transmitting employee  and employer contributions to  the defined                                                               
benefit  retirement  plan  of the  Public  Employees'  Retirement                                                               
System of Alaska; giving retrospective  effect to the substantive                                                               
provisions of the Act; and providing for an effective date."                                                                    
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 47                                                                                                                   
SHORT TITLE: PERS CONTRIBUTIONS BY MUNICIPALITIES                                                                               
SPONSOR(s): REPRESENTATIVE(s) FOSTER                                                                                            
                                                                                                                                
01/21/15       (H)       PREFILE RELEASED 1/9/15                                                                                
01/21/15       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/21/15       (H)       CRA, L&C                                                                                               
02/10/15       (H)       CRA AT 8:00 AM BARNES 124                                                                              
02/10/15       (H)       Heard & Held                                                                                           
02/10/15       (H)       MINUTE(CRA)                                                                                            
02/17/15       (H)       CRA AT 8:00 AM BARNES 124                                                                              
02/17/15       (H)       -- MEETING CANCELED --                                                                                 
02/21/15       (H)       CRA AT 10:00 AM BARNES 124                                                                             
02/21/15       (H)       -- MEETING CANCELED --                                                                                 
02/26/15       (H)       CRA AT 8:00 AM BARNES 124                                                                              
02/26/15       (H)       Heard & Held                                                                                           
02/26/15       (H)       MINUTE(CRA)                                                                                            
03/05/15       (H)       CRA AT 8:00 AM BARNES 124                                                                              
03/05/15       (H)       Moved  CSHB 47(CRA) Out of Committee                                                                   
03/05/15       (H)       MINUTE(CRA)                                                                                            
03/06/15       (H)       CRA RPT CS(CRA) NT 2DP 4NR                                                                             
03/06/15       (H)       DP: NAGEAK, SEATON                                                                                     
03/06/15       (H)       NR: DRUMMOND, REINBOLD, HUGHES, TILTON                                                                 
03/30/15       (H)       L&C AT 3:15 PM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
REPRESENTATIVE NEAL FOSTER                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified as sponsor of HB 47.                                                                           
                                                                                                                                
PAUL LABOLLE, Staff                                                                                                             
Representative Neal Foster                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified on behalf of the sponsor of HB                                                                 
47, Representative Neal Foster.                                                                                                 
                                                                                                                                
MIKE BARNHILL, Policy Analyst                                                                                                   
Office of the Director                                                                                                          
Office of Management & Budget (OMB)                                                                                             
Office of the Governor                                                                                                          
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified during the discussion of HB 47.                                                                
                                                                                                                                
KATHIE WASSERMAN, Lobbyist; Executive Director                                                                                  
Alaska Municipal League (AML)                                                                                                   
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified during the discussion on HB 47.                                                                
                                                                                                                                
SHANDA HUNTINGTON, City Manager                                                                                                 
City of Galena                                                                                                                  
Galena, Alaska                                                                                                                  
POSITION STATEMENT:  Testified during the discussion of HB 47.                                                                
                                                                                                                                
JON KORTA, Mayor                                                                                                                
City of Galena                                                                                                                  
Galena, Alaska                                                                                                                  
POSITION STATEMENT:  Testified during the discussion of HB 47.                                                                
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
3:17:27 PM                                                                                                                    
                                                                                                                                
CHAIR KURT  OLSON called  the House  Labor and  Commerce Standing                                                             
Committee  meeting  to  order  at   3:17  p.m.    Representatives                                                               
Josephson, Kito,  Tilton, Hughes  and Olson  were present  at the                                                               
call to order.  Representatives  Colver and LeDoux arrived as the                                                               
meeting was in progress.                                                                                                        
                                                                                                                                
           HB 47-PERS CONTRIBUTIONS BY MUNICIPALITIES                                                                       
                                                                                                                                
3:17:41 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON  announced that the  only order of business  would be                                                               
HOUSE BILL  NO. 47,  "An Act requiring  each municipality  with a                                                               
population that  decreased by more  than 25 percent  between 2000                                                               
and  2010 that  participates  in the  defined benefit  retirement                                                               
plan  of the  Public Employees'  Retirement System  of Alaska  to                                                               
contribute to the system an  amount calculated by applying a rate                                                               
of  22 percent  of the  total of  all base  salaries paid  by the                                                               
municipality  to employees  of  the municipality  who are  active                                                               
members of the system during  a payroll period; reducing the rate                                                               
of  interest payable  by a  municipality with  a population  that                                                               
decreased by more  than 25 percent between 2000 and  2010 that is                                                               
delinquent  in transmitting  employee and  employer contributions                                                               
to the defined  benefit retirement plan of  the Public Employees'                                                               
Retirement System  of Alaska; giving retrospective  effect to the                                                               
substantive  provisions   of  the  Act;  and   providing  for  an                                                               
effective date."  [Before the committee was CSHB 47(CRA)]                                                                       
                                                                                                                                
3:18:11 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  NEAL FOSTER,  Alaska State  Legislature, speaking                                                               
as sponsor, introduced himself.                                                                                                 
                                                                                                                                
3:18:29 PM                                                                                                                    
                                                                                                                                
PAUL  LABOLLE, Staff,  Representative Neal  Foster, Alaska  State                                                               
Legislature, explained  the changes in the  committee substitute,                                                               
CSHB 47(CRA)  that passed  out of  committee the  House Community                                                               
and  Regional  Affairs  Standing   Committee  on  3/5/2015.    He                                                               
referred to Section 1, which  would change the rules for applying                                                               
the  new base  salaries and  exempt  one community,  the City  of                                                               
Atka.  In order to reset  the 2008 salary floor, communities must                                                               
have lost  25 percent  or more of  their population,  with fiscal                                                               
year  (FY)  12 salaries  less  than  their  FY (fiscal  year)  08                                                               
salaries.                                                                                                                       
                                                                                                                                
MR.  LABOLLE directed  attention  to Section  2, which  basically                                                               
establishes  that if  the community's  base  salaries fell  below                                                               
what  they were  in FY  08,  the city  was required  to pay  that                                                               
amount, with a  delinquent amount fee of 8 percent  instead of 12                                                               
percent.  He  explained that Senate Bill 125 [,  which passed the                                                               
25th Legislature  in 2008,]  enacted that  provision.   The extra                                                               
interest  rate  was  intended  to   be  punitive,  based  on  the                                                               
actuarial amount -  the amount required to make  the system whole                                                               
-  plus  an  additional  4  percent.   He  said  that  the  House                                                               
Community  and  Regional  Affairs Standing  Committee  felt  that                                                               
communities  that  were  already  paying  more  than  their  base                                                               
salaries  into the  system  didn't really  need  a punitive  rate                                                               
applied to  them and  the 8  percent that  would make  the system                                                               
whole would be sufficient.                                                                                                      
                                                                                                                                
3:21:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON asked for  further clarification on what                                                               
made the 12 percent assessment punitive.                                                                                        
                                                                                                                                
MR. LABOLLE referred to Section  2, of CSHB 47(CRA), which read,"                                                               
... interest  shall be assessed on  the outstanding contributions                                                               
at  [ONE   AND  ONE-HALF  TIMES]  the   most  recent  actuarially                                                               
determined rate  of earnings  for the retirement  plan ...."   He                                                               
said the actuarially-determined rate  represents the rate to make                                                               
the system whole and the one-half  times was the punitive part of                                                               
the rate.                                                                                                                       
                                                                                                                                
3:21:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   JOSEPHSON  asked   for  the   underlying  policy                                                               
decision for the bill.                                                                                                          
                                                                                                                                
MR.  LABOLLE stated  that  it  was to  provide  an incentive  for                                                               
communities  to pay  the  bills  on time.    Under CSHB  47(CRA),                                                               
communities that were  already paying above the  fiscal year (FY)                                                               
08 floor  will still  be subject  to the  punitive rate,  but the                                                               
assumption  was  that  perhaps communities  whose  salaries  fell                                                               
under the  FY 08 floor  simply couldn't  pay so it  wasn't deemed                                                               
necessary  for them  to be  subject  to punitive  rates, but  the                                                               
punitive rates  would apply to  those communities  whose salaries                                                               
were above the floor who simply chose not to pay, he said.                                                                      
                                                                                                                                
3:22:44 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON  asked for further clarification  on the                                                               
exclusion in CSHB 47(CRA).                                                                                                      
                                                                                                                                
MR. LABOLLE  said that  the sponsor  found five  communities this                                                               
bill  would   apply  to  included  Atka,   St.  George,  Pelican,                                                               
Anderson, and Galena; however, Atka  had salaries above the FY 08                                                               
floor.  Despite Atka's declining  population, their salaries were                                                               
going up, he  said.  If this  bill was applied to  Atka, it would                                                               
have  the  net  effect  of   increasing  the  floor  rather  than                                                               
decreasing the floor.                                                                                                           
                                                                                                                                
3:23:47 PM                                                                                                                    
                                                                                                                                
MR.  LABOLLE offered  to provide  a brief  historical background.                                                               
He stated that when Senate Bill  125 passed it provided relief to                                                               
municipalities  that  "had   gotten  underwater"  [with  unfunded                                                               
liability] in  their PERS [Public Employees'  Retirement System].                                                               
The method used to remedy that  was to take solo systems in which                                                               
each  municipality  and  the  state  were  considered  their  own                                                               
entities  in  terms  of  administering their  PERS  system.    He                                                               
explained  that  Senate Bill  125  lumped  municipalities in  one                                                               
large  system, the  state appropriated  a considerable  amount to                                                               
address the unfunded liability,  and required every PERS employer                                                               
to  pay 22  percent  of  their gross  salaries  into the  system,                                                               
unless the  gross salaries  were less than  the FY  2008 figures.                                                               
In  those instances  the PERS  employer  was required  to pay  22                                                               
percent of the  FY 2008 salaries, which is also  known as the "08                                                               
floor."    The  underlying  concern  was  that  without  limiting                                                               
payment requirements  to the "FY 08  floor," municipalities would                                                               
simply  layoff  workers and  hire  contract  employees to  reduce                                                               
payments into  the PERS system.   Thus the "FY 08  floor" was put                                                               
in place to avoid detrimental  effects to the system; however, he                                                               
said  that the  legislature did  not consider  legitimate reasons                                                               
municipalities  might  have  to eliminate  employees  other  than                                                               
"simple gaming"  of the system.   For  example, after the  "FY 08                                                               
floor" was set  the U.S. Air Force Campion Station  in Galena was                                                               
closed and the  community lost 30 percent of  its population, but                                                               
its PERS  gross salaries  shrunk from  $1.5 million  in FY  08 to                                                               
[$765,000] in  FY 12 due to  the economy.  Thus  with almost half                                                               
of its salary base eroded, was  impossible for the City of Galena                                                               
to make  the 22 percent  payment on  the "08 floor."   Currently,                                                               
the City of Galena has been  making payment on base salaries, but                                                               
the state adds the difference between  that amount and the "FY 08                                                               
floor" to the debt.   Thus the net effect has  been that the City                                                               
of Galena  can't afford to pay  its debt.  The  only recourse for                                                               
the state would  be to garner its revenue sharing,  which has the                                                               
effect to limit the City of Galena's ability to pay even more.                                                                  
                                                                                                                                
3:27:37 PM                                                                                                                    
                                                                                                                                
MR.  LABOLLE said  the City  of  Galena, by  law, cannot  declare                                                               
bankruptcy or opt  out of the system, but nothing  could stop the                                                               
city from "shutting off the lights  and walking out."  If so, the                                                               
state would get "stuck" with  the entire liability instead of the                                                               
portion that the City of Galena finds it is unable to pay.                                                                      
                                                                                                                                
3:28:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON   asked  whether  this   was  statutory                                                               
language.                                                                                                                       
                                                                                                                                
MR. LABOLLE agreed it was, noting  that the "buck stops" with the                                                               
state.                                                                                                                          
                                                                                                                                
3:28:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  asked whether  he  meant  the City  of                                                               
Galena could go bankrupt.                                                                                                       
                                                                                                                                
MR. LABOLLE agreed  that for all intents and  purposes that would                                                               
be  the  effect,  although  the City  of  Galena  cannot  legally                                                               
declare itself bankrupt.                                                                                                        
                                                                                                                                
3:28:44 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HUGHES asked  whether  Galena was  now paying  22                                                               
percent on $765,000, but not the  22 percent on the $1.5 million,                                                               
which created a gap.                                                                                                            
                                                                                                                                
MR. LABOLLE answered yes; absolutely.                                                                                           
                                                                                                                                
3:29:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KITO asked for the  City of Galena's current total                                                               
outstanding debt.                                                                                                               
                                                                                                                                
MR. LABOLLE said that according to  his figures that as of FY 14,                                                               
the debt was $1.5 million.                                                                                                      
                                                                                                                                
3:29:59 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON suggested the fiscal notes needed to be updated.                                                                    
                                                                                                                                
MR. LABOLLE replied that it  requires an actuary to calculate the                                                               
debt so the  department was waiting until the bill  was in a more                                                               
final form prior to updating the fiscal note.                                                                                   
                                                                                                                                
3:30:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TILTON clarified  that  the  House Community  and                                                               
Regional Affairs  Standing Committee requested an  updated fiscal                                                               
note,  but since  it requires  an actuary,  which is  costly, the                                                               
committee held off  until the bill goes to the  next committee of                                                               
referral.                                                                                                                       
                                                                                                                                
MR. LABOLLE surmised it was  a good idea, considering the changes                                                               
the House Community and Regional  Affairs Standing Committee made                                                               
to the bill.                                                                                                                    
                                                                                                                                
3:31:32 PM                                                                                                                    
                                                                                                                                
MR. LABOLLE directed  attention to Section 2,  noting the handout                                                               
in  members'  packets  entitled   "Explanation  of  Changes  from                                                               
Version A to Version N" covered the changes.                                                                                    
                                                                                                                                
3:32:03 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON  asked whether  it was the  "one and  one-half times"                                                               
language in the bill.                                                                                                           
                                                                                                                                
MR. LABOLLE clarified  that was the original rate.   He explained                                                               
that instead  of paying "one  and one-half times" they  would pay                                                               
interest at "one times" the rate of earnings.                                                                                   
                                                                                                                                
MR.  LABOLLE referred  to the  retroactive clause  in Section  3,                                                               
noting  it would  go  back  to 2009  and  forgive the  delinquent                                                               
amount up to the date of passage of the bill, he said.                                                                          
                                                                                                                                
3:32:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  asked  where  cost  was  reflected  in                                                               
fiscal note.                                                                                                                    
                                                                                                                                
MR. LABOLLE answered that it  was not currently reflected, but it                                                               
will  be  reflected  in  the forthcoming  fiscal  note  from  the                                                               
actuary.  He explained the  retroactive clause in Section 2 would                                                               
provide  a straight  forgiveness for  communities who  are paying                                                               
below  the  floor  [FY  08]   and  lost  [25  percent]  of  their                                                               
population.     However, the  delinquent amounts  for communities                                                               
without  the exemption  would be  charged interest  at 8  percent                                                               
instead of 12 percent.                                                                                                          
                                                                                                                                
3:34:10 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KITO clarified  that  this does  not represent  a                                                               
cash cost  to the state,  but reflects  revenue that will  not be                                                               
collected by the state.                                                                                                         
                                                                                                                                
MR. LABOLLE  agreed.  He said  that the system was  legally bound                                                               
not to make  cash distributions other than  for retirement costs.                                                               
He characterized it was foregone revenue.                                                                                       
                                                                                                                                
3:34:41 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON related  his understanding that it would  not have an                                                               
impact until the person reaches retirement.                                                                                     
                                                                                                                                
MR. LABOLLE agreed.                                                                                                             
                                                                                                                                
3:34:47 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HUGHES asked  whether the state would  make up the                                                               
difference if municipalities contribute less.                                                                                   
                                                                                                                                
MR. LABOLLE  deferred to the  Office of Management and  Budget to                                                               
respond.                                                                                                                        
                                                                                                                                
3:35:18 PM                                                                                                                    
                                                                                                                                
MIKE BARNHILL, Policy Analyst, Office  of the Director, Office of                                                               
Management &  Budget (OMB), Office  of the Governor,  stated that                                                               
if the state  doesn't collect revenue in a  particular year, with                                                               
all other things being equal, it  will count as an actuarial loss                                                               
for the  year.  He stated  that the actuary calculates  all gains                                                               
and losses and amortizes them  over a 25-year period.  Therefore,                                                               
it  would  add  to  the  unfunded  liability  and  to  the  state                                                               
assistance that the state pays per the statute.                                                                                 
                                                                                                                                
3:36:10 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON  said that basically  it will  cost the state  at the                                                               
"back end."                                                                                                                     
                                                                                                                                
MR. BARNHILL  answered that the  amount would be rolled  into the                                                               
state assistance in the next fiscal year.                                                                                       
                                                                                                                                
CHAIR OLSON  asked whether it was  safe to assume the  new fiscal                                                               
note will be higher than $187,000.                                                                                              
                                                                                                                                
MR. BARNHILL  replied that the  fiscal analysis was  completed by                                                               
the  actuarial analysis  last week  and the  fiscal note  will be                                                               
provided to the committee.  He  suggested that the amount will go                                                               
down somewhat, which may be the result of Atka being exempt.                                                                    
                                                                                                                                
3:36:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HUGHES suggested  that if the rate  was also being                                                               
reduced from  12 to  8 percent  that it  seemed like  the revenue                                                               
will also be reduced and the state assistance will increase.                                                                    
                                                                                                                                
MR. BARNHILL  suggested that  the committee  wait for  the fiscal                                                               
note before holding further discussions.                                                                                        
                                                                                                                                
3:37:40 PM                                                                                                                    
                                                                                                                                
CHAIR  OLSON  asked  whether  the  retroactivity  would  have  an                                                               
impact.                                                                                                                         
                                                                                                                                
MR. LABOLLE  answered yes; that  the fiscal impact for  the first                                                               
fiscal year will  be substantially larger than  the fiscal impact                                                               
for subsequent years due to  retroactivity, with four years being                                                               
lumped into one.                                                                                                                
                                                                                                                                
3:38:23 PM                                                                                                                    
                                                                                                                                
MR. BARNHILL  stated that the  administration supports  this bill                                                               
in concept.  Since 2008,  the state has continuously examined the                                                               
appropriate  relative   participation  by   the  state   and  the                                                               
collective  municipalities to  pay down  the unfunded  liability.                                                               
This  bill was  just one  more piece  after the  legislature held                                                               
fairly protracted discussions last session.   With the $3 billion                                                               
appropriation  and  the  extension  of the  amortization  for  an                                                               
additional nine  years, municipalities participated at  a greater                                                               
level  than previously  in paying  down  the unfunded  liability.                                                               
This  happens   with  the   extension  of   the  time   in  which                                                               
municipalities will  pay at  22 percent.   He considered  this as                                                               
yet  another  instance  in  which the  state  was  examining  the                                                               
relative  share and  in  this instance  this  bill considers  the                                                               
relative share and the cost shifting as being fairly small.                                                                     
                                                                                                                                
CHAIR OLSON suggested he will  have additional questions once the                                                               
fiscal note is released.                                                                                                        
                                                                                                                                
3:40:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HUGHES  related  her understanding  that  it  was                                                               
important to set the floor so  employees will not be laid off and                                                               
replaced with  contract employees.   She asked whether  there was                                                               
any  way  to follow  staffing  changes  when the  population  was                                                               
declining and the salaries being paid out are also reduced.                                                                     
                                                                                                                                
MR.  LABOLLE  offered  his  belief   she  was  referring  to  two                                                               
different  things.   First, the  bill  helps to  ensure that  the                                                               
state continues to have a  backstop against municipalities hiring                                                               
contract employees  instead of municipal  employees who  must pay                                                               
into  PERS [the  Public Employee's  Retirement System],  which is                                                               
one reason the FY  08 floor was reset to FY  12 instead of "going                                                               
away."   Secondly, he  directed attention to  a list  in members'                                                               
packets [entitled  PERS Employer Salaries  for FY 08-FY  12] that                                                               
lists  communities  affected by  the  floor.   He  next  directed                                                               
attention  to the  far left  column that  indicates the  employee                                                               
count  [changes] in  FY 2008,  and the  column on  the far  right                                                               
lists the employee  count for FY 2012.  Further,  this chart also                                                               
lists the gross  salaries from FY 2008 to FY  2012.  For example,                                                               
the City of  Galena's employees were reduced from 35  to 17 since                                                               
the municipality could not afford to pay them.                                                                                  
                                                                                                                                
3:42:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX  asked what  the problem  would be  if some                                                               
municipalities hire contract employees instead.                                                                                 
                                                                                                                                
MR. LABOLLE answered that municipalities  would still be required                                                               
to  pay  22  percent of  the  FY  2012  salaries.   Even  if  the                                                               
municipalities  cut  all  of its  employees,  the  municipalities                                                               
would still need to make a  22 percent payment to the PERS system                                                               
based on FY 08 figures, he said.                                                                                                
                                                                                                                                
3:43:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX  asked for the effect  on municipalities if                                                               
this  bill passed  and  whether  municipalities without  contract                                                               
employees would pay less, but  if they had contract employees the                                                               
rate would stay at 22 percent.                                                                                                  
                                                                                                                                
MR. LABOLLE  answered that any existing  contract employees would                                                               
be  unaffected by  the bill  since HB  47 will  only affect  PERS                                                               
employees.    Referring to  the  City  of  Galena, with  35  PERS                                                               
employees in FY  2008, but 17 in  FY 2012, the new  floor will be                                                               
based on the 17 employees, he said.                                                                                             
                                                                                                                                
3:44:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX said she was  unsure how contract employees                                                               
were involved.                                                                                                                  
                                                                                                                                
MR. LABOLLE reiterated  that Senate Bill 125  created the current                                                               
PERS system  floor payment of  FY 2008, set  as a backstop,  as a                                                               
disincentive  for  municipalities  to  fire  PERS  employees  and                                                               
replace  them with  contract  employees in  an  effort to  reduce                                                               
their liability to the PERS.                                                                                                    
                                                                                                                                
3:45:14 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   COLVER  asked   for  further   clarification  on                                                               
declining  employment and  the liability  accrued for  paying the                                                               
PERS.      He  recalled   that   the   termination  study   means                                                               
municipalities can't even  delete a position.   He suggested that                                                               
this  was a  single fix  for communities  that fall  within these                                                               
guidelines.  He asked for the  "big picture" in terms of unfunded                                                               
liability for cities and school districts.                                                                                      
                                                                                                                                
MR.  BARNHILL  answered  that  what   he  was  referring  to  was                                                               
termination studies, which  is not encompassed by this  bill.  He                                                               
explained that  in 2008,  there were  basically two  backstops to                                                               
secure  a   certain  level  of  participation   by  participating                                                               
employers and  the unfunded liability.   One was the  2008 salary                                                               
floor  that  required payment  at  the  FY  2008 floor  for  each                                                               
employer at 22  percent.  The other related  to termination costs                                                               
so  if   an  employer  terminates   a  group   classification  or                                                               
department, it  would trigger a  termination study to  figure out                                                               
the new unfunded liability.  The  employer would need to pay that                                                               
plus  all  of   the  past  service  costs   associated  with  the                                                               
terminated positions,  not capped,  until the  unfunded liability                                                               
was  extinguished.   He  reminded members  this  time period  was                                                               
extended from 2031 to 2039 last legislature.                                                                                    
                                                                                                                                
MR. BARNHILL  acknowledged this  issue has been  an issue  in the                                                               
past that  the legislature may  wish to  continue, but it  is not                                                               
part of this bill.                                                                                                              
                                                                                                                                
MR. LABOLLE added that those  termination studies applied whether                                                               
or not those terminations would  bring the municipality below the                                                               
FY 08 floor.                                                                                                                    
                                                                                                                                
3:48:20 PM                                                                                                                    
                                                                                                                                
CHAIR  OLSON  commented  that  it  was  a  flat  charge  for  the                                                               
employee.                                                                                                                       
                                                                                                                                
MR.  BARNHILL said  the  cost of  the study  was  from $2,500  to                                                               
$5,000, but the study would also identify the costs.                                                                            
                                                                                                                                
CHAIR OLSON suggested that it was a pretty healthy disincentive.                                                                
                                                                                                                                
3:48:55 PM                                                                                                                    
                                                                                                                                
MR. BARNHILL said he was not  sure he could comment on whether it                                                               
was  an incentive  or  disincentive, but  it  has certainly  been                                                               
perceived by  the municipal employer  community as a  burden that                                                               
impairs  their ability  with to  be  flexible in  how they  staff                                                               
their governments.                                                                                                              
                                                                                                                                
3:49:36 PM                                                                                                                    
                                                                                                                                
KATHIE WASSERMAN, Lobbyist;  Executive Director, Alaska Municipal                                                               
League (AML), stated that the AML  has been working with PERS for                                                               
many  years.   She added  that the  AML worked  closely with  the                                                               
Senate Finance  Committee in  creating Senate  Bill 125  in 2008.                                                               
She recalled the  22 percent figure was used since  the state had                                                               
no   ability  to   separate  out   the  cost   per  municipality.                                                               
Therefore, all municipalities and  the state were lumped together                                                               
and a  price was  negotiated at  22 percent,  which seemed  to be                                                               
fair and enough to pay off the unfunded liability.                                                                              
                                                                                                                                
3:50:55 PM                                                                                                                    
                                                                                                                                
MS.  WASSERMAN  stated that  the  legislature  appropriated a  $3                                                               
billion infusion last  year, which AML supported,  even though it                                                               
included  some aspects  that  may not  be  entirely positive  for                                                               
municipalities.  Since municipalities  believe they can handle an                                                               
extended amortization  rather than  all at  once, nine  years was                                                               
added,  and  municipalities  will  pick  up  an  additional  $2.5                                                               
billion at the end of amortization.   She offered her belief that                                                               
municipalities are picking up their  fair share of the costs, but                                                               
the  below the  floor  issue  has proven  to  be  a bad  business                                                               
process.   Due to  the state's  deficit, municipalities  will see                                                               
more cuts and many small  communities simply have no wiggle room.                                                               
Most  of  these communities  cannot  afford  to hire  a  contract                                                               
employee.   She  stated  that  the City  of  Pelican reduced  its                                                               
employees to  three employees, with  the top one earning  $12 per                                                               
hour.   She emphasized that  these communities do not  have money                                                               
to pay their salaries, much less  this bill.  It's just not going                                                               
to happen, she  said, adding that municipalities do  not have any                                                               
means for bankruptcy.                                                                                                           
                                                                                                                                
3:52:51 PM                                                                                                                    
                                                                                                                                
MS. WASSERMAN  said the  AML would  like to  see this  bill pass.                                                               
These are the  communities in dire need [the  foregoing 23 cities                                                               
listed].   For  example, the  City of  Galena received  its first                                                               
bill  four  to five  years  ago  for  $194,000, which  has  since                                                               
escalated due to interest rates.   Further, there isn't much that                                                               
can be  taken away from these  communities, she said.   She hoped                                                               
the committee would pass the bill.                                                                                              
                                                                                                                                
3:53:54 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON stated  that these communities do not have  much of a                                                               
tax base.                                                                                                                       
                                                                                                                                
MS. WASSERMAN  agreed, noting that  tribal lands also  limit some                                                               
of the communities' ability to achieve a tax base.                                                                              
                                                                                                                                
3:54:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX  asked how much  it would cost to  save the                                                               
four communities.                                                                                                               
                                                                                                                                
MS. WASSERMAN said she did not know the annual payment.                                                                         
                                                                                                                                
3:54:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  LEDOUX said  she didn't  understand how  it saves                                                               
the communities so much money.                                                                                                  
                                                                                                                                
CHAIR OLSON  acknowledged that could  be addressed when  the next                                                               
fiscal note was released.                                                                                                       
                                                                                                                                
MS. WASSERMAN commented that the  relative percentage of money to                                                               
the  City of  Galena  may not  look like  much  from the  state's                                                               
perspective,  but it  is  a lot  for  the City  of  Galena.   She                                                               
recalled that  in reducing its  staff from [35] employees  to 17,                                                               
meant it  reduced about half  its staff.  Thus,  the municipality                                                               
will pay below the FY 2008 floor on half of its employees.                                                                      
                                                                                                                                
3:56:21 PM                                                                                                                    
                                                                                                                                
SHANDA HUNTINGTON, City  Manager, City of Galena, said  she was a                                                               
life-long resident of  Galena.  She provided  some information on                                                               
the population decline.  First,  the US Air Force base officially                                                               
closed  in 2008,  following a  multi-million dollar  "draw down."                                                               
In 1990, prior  to the base realignment,  Galena's population was                                                               
847.  Galena  has always been a small city  and the military base                                                               
was  an  economic driver.    According  to  the 2000  census  the                                                               
population was  675, but it dropped  to 470 in 2010.   She stated                                                               
that  205 people  may not  seem  a lot,  but it  represents a  30                                                               
percent decline in  the city's population between  the two census                                                               
periods.  Although  30 percent of the population  moved away, the                                                               
decline in the city's economic activity  was much greater.  In FY                                                               
2008, the City  of Galena's salary total was $1.5  million for 36                                                               
employees,  with  a  required   minimum  annual  contribution  of                                                               
$332,000.    In FY  12,  the  amended  floor  year, the  City  of                                                               
Galena's payroll was $765,000 for  17 employees.  Between FY 2008                                                               
to  FY 2012,  Galena's payroll  was  cut in  half reflecting  the                                                               
decrease in population and economic activity.                                                                                   
                                                                                                                                
MS.  HUNTINGTON said  that the  City of  Galena's minimum  annual                                                               
PERS contribution represented  nearly half of the  city's FY 2012                                                               
total payroll  cost.   In FY  2012 the  City of  Galena's minimum                                                               
PERS  contribution  to the  state  was  $168,000.   However,  the                                                               
difference  in PERS  contribution  between FY  2008  and FY  2012                                                               
actual  payroll  was $164,000.    This  difference will  continue                                                               
going forward  creating an ever increasing  obligation, she said.                                                               
By statute any unpaid amount  will accrue interest at 12 percent.                                                               
This  ever  increasing  obligation  adds to  the  city's  already                                                               
stressed situation.  She said  the city's financial situation was                                                               
so severe  in FY 2009  that the City of  Galena had to  acquire a                                                               
low-interest loan through the Alaska  Municipal Bond Bank to deal                                                               
with a  severe cash  flow crisis, which  prevented the  city from                                                               
securing  fuel, heat,  and electricity.   Simply  put, if  Galena                                                               
can't pay its bills, the lights will go out, she said.                                                                          
                                                                                                                                
4:00:14 PM                                                                                                                    
                                                                                                                                
MS.  HUNTINGTON  said that  reasonably  adjusting  the floor  for                                                               
several cities does  not mean the city will only  pay the minimum                                                               
amount.  She said that modifying  the floor year changes the City                                                               
of Galena's  annual contribution  from $332,000 to  $168,000, but                                                               
the actual contribution  might be higher.  In fact,  FY 2013, the                                                               
City of Galena  had an amended minimum for its  total payroll for                                                               
18 employees  at $895,000.  She  said that for FY  2013, the City                                                               
of Galena's contribution would have  been above the 2008 floor by                                                               
$30,000.    She stated  that  this  bill recognizes  the  drastic                                                               
population decreases  experienced by some Alaskan  cities using a                                                               
clearly defined metric of a 25 percent decrease in population.                                                                  
                                                                                                                                
MS.  HUNTINGTON  said  that  the   base  closure  has  been  very                                                               
difficult for  the City of Galena.   For the past  several years,                                                               
its finances have  stabilized; however, it isn't  possible to say                                                               
what will happen to Galena's  long-term population, but she hoped                                                               
it has  turned a  corner.  Although  its finances  have improved,                                                               
the City  of Galena  PERS contribution could  weaken the  City of                                                               
Galena and threatens  its ability to provide  any contribution to                                                               
PERS.   The City  of Galena has  been cautiously  optimistic that                                                               
the city will  become strong and even grow over  time to the 2008                                                               
levels.  If  that occurs, the City of Galena  will be required to                                                               
pay  a  PERS contribution  comparable  with  that size  and  that                                                               
payroll and will  do so; however, it is not  that city right now,                                                               
she said.   The oversize  PERS contribution inhibits  it becoming                                                               
so.     She  offered  that  recognizing   the  drastic  declining                                                               
population  was  a   matter  of  simple  fairness.     This  bill                                                               
recognizes  this  and  ultimately  promotes the  PERS'  goals  to                                                               
ensure that  Alaska municipalities  continue to  contribute their                                                               
fair  share  to  the  system.     She  thanked  members  for  the                                                               
opportunity to testify.                                                                                                         
                                                                                                                                
4:03:31 PM                                                                                                                    
                                                                                                                                
JON  KORTA, Mayor,  City  of Galena,  thanked  the committee  for                                                               
taking time to listen to his  explanation of the importance of HB                                                               
47.   He stated that the  US Air Force base  was closed effective                                                               
in October  2010, although  the closure was  in process  for four                                                               
years.  The Air Force base  was the main source of employment for                                                               
Galena  residents so  when  the base  closed  the population  was                                                               
reduced  by 50  percent in  2010.   He reported  that Galena  was                                                               
again struck by hardship in 2013  when ice dammed the Yukon River                                                               
and   inundated  the   city  leading   to   a  federal   disaster                                                               
declaration.    The FY  2008  floor  established by  current  law                                                               
exists to prevent  a municipality from gaming the  PERS system by                                                               
contracting out work previously  performed by municipal employees                                                               
in  order to  avoid making  ongoing contributions  to PERS.   The                                                               
current  minimum  PERS  contribution  was based  on  a  level  of                                                               
salaries that existed in 2008.   It does not account for the City                                                               
of  Galena's situation.   It  was not  intended for,  nor did  it                                                               
contemplate  municipalities with  sharply declining  populations.                                                               
Although  this  bill   does  not  change  the   PERS  policy,  it                                                               
recognizes communities who have suffered  a minimum of 25 percent                                                               
decline in population between 2000 and  2010, such as Galena.  He                                                               
offered that a  25 percent threshold would represent  the loss of                                                               
75,000  people  from  Anchorage  or  8,000  people  from  Juneau.                                                               
Further,  he  wondered what  would  happen  to Fairbanks  if  its                                                               
population declined  by 30,000 or  if Eielson Air Force  Base and                                                               
Ft. Wainwright were closed.                                                                                                     
                                                                                                                                
4:06:03 PM                                                                                                                    
                                                                                                                                
MR. KORTA said  that this bill would move the  floor from 2008 to                                                               
2012 for those communities that  experience huge loses.  However,                                                               
it  does not  provide a  loophole  that allows  any community  to                                                               
"game the  system."     He stated that Galena's  FY 2015 salaries                                                               
fall above  the 2012 amount for  17 employees.  He  said that the                                                               
City of Galena's circumstances are  not the result of any choices                                                               
being made.   Base closure and loss of close  to one-third of the                                                               
city's population was entirely involuntary, he said.                                                                            
                                                                                                                                
4:06:59 PM                                                                                                                    
                                                                                                                                
MR. KORTA said the relationship  between declining population and                                                               
declining payroll  is clear.   Based  on the  FY 2008  floor, the                                                               
City of  Galena was required to  pay an amount equivalent  to the                                                               
amount  paid by  cities  substantially larger  than  Galena.   In                                                               
fact, the City of Galena's  required PERS contribution approaches                                                               
nearly half  of the city's entire  payroll.  He said  that the FY                                                               
2008 floor does not account  for all situations, including cities                                                               
that have  suffered massive population  contractions.   This bill                                                               
furthers   the  underlying   policy  goals   of  the   regulatory                                                               
structure, and helps  ensure that the municipalities  are able to                                                               
continue  contributing  to PERS  while  recognizing  that a  city                                                               
cannot and should not have to  make a contribution of a city with                                                               
a  significantly larger  population.   Recognizing  that City  of                                                               
Galena is not the same city it  was before the base closed and 30                                                               
percent  of its  population  moved away  is  simply good  policy;                                                               
policy  that helps  ensure that  City of  Galena can  continue to                                                               
contribute to PERS and  recognizing sharply declining populations                                                               
is just plain fair.                                                                                                             
                                                                                                                                
4:08:19 PM                                                                                                                    
                                                                                                                                
CHAIR  OLSON pointed  out that  nearly all  members of  the House                                                               
Labor   and  Commerce   Standing   Committee   live  in   smaller                                                               
communities and one member currently residing in Anchorage                                                                      
previously lived in Kodiak.                                                                                                     
                                                                                                                                
4:08:57 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON, after first determining no one wished to testify,                                                                  
kept public testimony open for HB 47.                                                                                           
                                                                                                                                
[HB 47 was held over.]                                                                                                          
                                                                                                                                
4:09:34 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Labor and Commerce Standing Committee meeting was adjourned at                                                                  
4:09 p.m.                                                                                                                       

Document Name Date/Time Subjects
HB47 Version N.pdf HL&C 3/30/2015 3:15:00 PM
HB 47
HB47 Sponsor Statement.pdf HL&C 3/30/2015 3:15:00 PM
HB 47
HB47 Summary of Changes ver A to ver N.pdf HL&C 3/30/2015 3:15:00 PM
HB 47
HB47 Fiscal Note DOA-DRB-3-22-13.pdf HL&C 3/30/2015 3:15:00 PM
HB 47
HB47 Fiscal Note-DCCED-DCRA-02-06-15.pdf HL&C 3/30/2015 3:15:00 PM
HB 47
HB47 Fiscal Note DCCED-CRA-3-06-15.pdf HL&C 3/30/2015 3:15:00 PM
HB 47
HB47 Supporting Documents-Employers Impacted by Salary Floor.pdf HL&C 3/30/2015 3:15:00 PM
HB 47
HB47 Supporting Documents-PERS Employer Salaries for FY08 - FY12 Affected Muniticaplities.pdf HL&C 3/30/2015 3:15:00 PM
HB 47
HB47 Supporting Documents-PERS Cities by 2010 Population.pdf HL&C 3/30/2015 3:15:00 PM
HB 47
HB47 Supporting Documents-PERS Employer Salaries for FY08 - FY12.pdf HL&C 3/30/2015 3:15:00 PM
HB 47
HB47 Supporting Documents-Total Active PERS Employees.pdf HL&C 3/30/2015 3:15:00 PM
HB 47
HB47 Supporting Documents-Amended Statutes - AS 39.35.pdf HL&C 3/30/2015 3:15:00 PM
HB 47
HB47 Supporting Documents-Email-3-10-13-Affected Employers.pdf HL&C 3/30/2015 3:15:00 PM
HB 47