Legislature(1999 - 2000)
02/17/2000 08:05 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE STATE AFFAIRS STANDING COMMITTEE
February 17, 2000
8:05 a.m.
MEMBERS PRESENT
Representative Jeannette James, Chair
Representative Joe Green
Representative Jim Whitaker
Representative Beth Kerttula
Representative Hal Smalley
Representative Scott Ogan
MEMBERS ABSENT
Representative Bill Hudson
OTHER HOUSE MEMBERS PRESENT
Representative Carl Moses
COMMITTEE CALENDAR
HOUSE JOINT RESOLUTION NO. 52
Proposing an amendment to the Constitution of the State of Alaska
relating to certain public corporations.
- MOVED HJR 52 OUT OF COMMITTEE
2d SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 124
"An Act relating to the taxation of income and providing a credit
for certain property taxes, and permitting the legislature to use
certain income tax proceeds to make appropriations for public
schools."
- HEARD AND HELD
HOUSE BILL NO. 138
"An Act relating to the taxation of income."
- HEARD AND HELD
HOUSE BILL NO. 137
"An Act relating to the municipal dividend program; and providing
for an effective date."
- HEARD AND HELD
HOUSE BILL NO. 335
"An Act relating to information contained in retirement system
records; relating to retirement boards; relating to procedures
and hearings under state retirement systems; relating to benefits
for reemployed retired members of retirement systems; relating to
eligibility for normal retirement for members of the teachers'
retirement system who have Alaska BIA credited service; relating
to disability benefits for members of state retirement systems;
relating to deduction of premiums from retirement benefits;
relating to protection of, and assignment and transfer of,
amounts held in retirement systems; relating to retirement
benefits for certain employees earning high salaries; relating to
qualified domestic relations orders in state retirement systems;
relating to the definition of 'retirement fund' in the teachers'
retirement system; relating to membership of state employees in
the teachers' retirement system; relating to refund of
contributions made to the judicial retirement system or to the
former elected public officers retirement system and repayment of
refunded contributions in those systems; relating to self-
insurance and excess loss insurance for persons receiving
benefits from a state retirement system; relating to
participation of elected officials in the public employees'
retirement system; relating to reinstatement of credited service
in the public employees' retirement system after a refund because
of certain levies; relating to the level income option benefit
under the public employees' retirement system; relating to
participation of employees of political subdivisions and public
organizations in the public employees' retirement system;
relating to penalties for attempts to defraud the public
employees' retirement system; relating to the definition of
'pension fund' in the public employees' retirement system;
relating to calculation of years of service and of benefits under
the public employees' retirement system for non certificate-
holding employees of certain educational employers; and relating
to individual accounts maintained for members of the former
elected public officers retirement system."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HJR 52
SHORT TITLE: CONFIRM PUBLIC CORP BD MANAGING ASSETS
Jrn-Date Jrn-Page Action
2/02/00 2059 (H) READ THE FIRST TIME - REFERRALS
2/02/00 2060 (H) STA, JUD, FIN
2/02/00 2060 (H) REFERRED TO STATE AFFAIRS
2/17/00 (H) STA AT 8:00 AM CAPITOL 102
BILL: HB 124
SHORT TITLE: INCOME TAX ON INDIVIDUALS & FIDUCIARIES
Jrn-Date Jrn-Page Action
3/05/99 367 (H) READ THE FIRST TIME - REFERRAL(S)
3/05/99 367 (H) STA, FIN
3/19/99 514 (H) SPONSOR SUBSTITUTE INTRODUCED
3/19/99 514 (H) READ THE FIRST TIME - REFERRAL(S)
3/19/99 514 (H) STA, HES, FIN
1/18/00 1937 (H) 2D SPONSOR SUBSTITUTE INTRODUCED
1/18/00 1937 (H) READ THE FIRST TIME - REFERRALS
1/18/00 1937 (H) STA, HES, FIN
1/18/00 1937 (H) REFERRED TO STATE AFFAIRS
1/25/00 (H) STA AT 8:00 AM CAPITOL 102
1/25/00 (H) Heard & Held
1/25/00 (H) MINUTE(STA)
2/16/00 2224 (H) COSPONSOR(S): AUSTERMAN
2/17/00 (H) STA AT 8:00 AM CAPITOL 102
BILL: HB 138
SHORT TITLE: INCOME TAX ON INDIVIDUALS & FIDUCIARIES
Jrn-Date Jrn-Page Action
3/15/99 454 (H) READ THE FIRST TIME - REFERRAL(S)
3/15/99 454 (H) STA, FIN
2/17/00 (H) STA AT 8:00 AM CAPITOL 102
BILL: HB 137
SHORT TITLE: MUNICIPAL DIVIDEND PROGRAM
Jrn-Date Jrn-Page Action
3/15/99 454 (H) READ THE FIRST TIME - REFERRAL(S)
3/15/99 454 (H) CRA, STA, FIN
2/03/00 (H) CRA AT 8:00 AM CAPITOL 124
2/03/00 (H) Moved CSHB 137(CRA) Out of Committee
2/03/00 (H) MINUTE(CRA)
2/04/00 2085 (H) CRA RPT CS(CRA) 1DP 4NR 1AM
2/04/00 2085 (H) DP: KOOKESH; NR: MURKOWSKI, HALCRO,
2/04/00 2085 (H) DYSON, JOULE; AM: HARRIS
2/04/00 2085 (H) 2 ZERO FISCAL NOTES (DCED, REV)
2/04/00 2085 (H) REFERRED TO STATE AFFAIRS
2/17/00 (H) STA AT 8:00 AM CAPITOL 102
BILL: HB 335
SHORT TITLE: STATE RETIREMENT SYSTEMS AND BENEFITS
Jrn-Date Jrn-Page Action
2/04/00 2091 (H) READ THE FIRST TIME - REFERRALS
2/04/00 2092 (H) STA, FIN
2/04/00 2092 (H) REFERRED TO STATE AFFAIRS
2/17/00 (H) STA AT 8:00 AM CAPITOL 102
WITNESS REGISTER
BRETT FRIED, Economist
Division of Income & Excise Audit Division
Department of Revenue
PO Box 110420
Juneau, Alaska 99811-0420
POSITION STATEMENT: Provided information on HB 138.
FRANK KELTY, Mayor
City of Unalaska
PO Box 610
Unalaska, Alaska 99685
POSITION STATEMENT: Testified in support of HB 137.
MELINDA HOFSTAD, Legislative Assistant
to Representative Bill Hudson
Alaska State Legislature
Capitol Building, Room 108
Juneau, Alaska 99801
POSITION STATEMENT: Presented sponsor statement for HB 335.
GUY BELL, Director
Division of Retirement and Benefits
Department of Administration
PO Box 110203
Juneau, Alaska 99811-0203
POSITION STATEMENT: Provided division's position and answered
questions regarding HB 335.
ACTION NARRATIVE
TAPE 00-6, SIDE A
Number 0001
CHAIR JEANNETTE JAMES called the House State Affairs Standing
Committee meeting to order at 8:05 a.m. Members present at the
call to order were Representatives James, Whitaker, Kerttula,
Smalley and Ogan. Representative Green arrived as the meeting
was in progress. Representative Hudson was absent.
HJR 52-CONFIRM PUBLIC CORP BD MANAGING ASSETS
Number 0040
CHAIR JAMES announced the first order of business is HOUSE JOINT
RESOLUTION NO. 52, "Proposing an amendment to the Constitution of
the State of Alaska relating to certain public corporations."
CHAIR JAMES presented the sponsor statement for HJR 52 as
follows:
Alaska's Constitution currently provides for
legislative confirmation of all boards or commissions
which are the head of a principal department or a
regulatory or quasi-judicial agency. An example would
be the Department of Fish and Game.
Public corporations, which manage and control billions
of dollars of state assets and have a tremendous impact
on the economy of our state, are not included in this
provision. Their members are not subject to
legislative confirmation. An example is the Permanent
Fund Corporation.
I believe these public corporation boards should also
be required to undergo formal appointment and
confirmation, thereby making the public and their
elected representatives part of the process.
House Joint Resolution 52 would amend Alaska's
constitution to require this.
Number 0215
CHAIR JAMES noted that HJR 52 is the same as the corresponding
Senate bill. She stated that the Permanent Fund Board manages
the largest single state asset, and it seems to her that board
management can change overnight on the whim of a governor, as
happened when former Governor Hickel and Governor Knowles took
office. She does not think such a procedure is good business
policy because it wipes out continuity. Although she does
approve the appointments being made by a governor, she wants to
see continuity in maintaining expertise.
CHAIR JAMES noted that she had tried to change the present manner
of appointing board members to the Permanent Fund Corporation [in
particular] by statute, but found any change had to be by
constitutional amendment. She commented that the factor that
determines whether a corporation or board is listed in the
constitution is if the legislature confirms the appointees. She
explained that the Permanent Fund Corporation is not listed in
the constitution; therefore, the legislature does not have
jurisdiction to confirm appointees to the board. She indicated
HJR 52 is important to her and urged its careful consideration.
She emphasized that maintaining continuity does not preclude a
change in policy to conform with the ruling administration. She
reminded the committee that new board members of any organization
have to learn the whole process, so she does not approve of
replacing an entire board at the whim of any new administration.
She said HJR 52 applies to all boards, commissions and public
corporations, not just to the Permanent Fund Corporation. She
mentioned that many Alaskans even question the need for all the
state boards.
Number 0501
REPRESENTATIVE OGAN inquired about the exclusion clause on lines
12-14, page 1, which read: "With respect to public corporations,
the legislature may by law exclude the applicability of this
section based on the type or value, or both, of the State assets
that are managed by the public corporation."
CHAIR JAMES replied that the legislature could exclude certain
public corporations, not necessarily boards and commissions, if
it so desired. For example, the legislature could exclude the
Alaska Railroad Corporation (ARRC) or the Alaska Housing Finance
Corporation (AHFC) by law.
Number 0580
REPRESENTATIVE OGAN requested a list of the public corporations.
CHAIR JAMES replied that the list she has is a list of boards and
commissions. She wondered if the committee might want to allow
certain boards and commissions to be excluded also from
legislative confirmation; an example is the occupational
licensing boards. She said according to her understanding,
industries that are monitored by occupational licensing boards
submit candidates for the governor's approval. She reminded the
committee that many board candidates are confirmed by the
legislature since they are already under legislative authority.
REPRESENTATIVE OGAN asked if it was Chair James' intent, in
accord with lines 12-14, page 1, of HJR 52, to allow legislators
to pick and choose among public corporations the ones that the
legislators wanted to confirm.
Number 0784
CHAIR JAMES answered yes. However, to do that the committee
needs to pass a constitutional amendment, HJR 52.
Number 0796
REPRESENTATIVE WHITAKER asked if the Aerospace Development
Corporation, the AHFC, the Permanent Fund Corporation, the ARRC
and the Student Loan Corporation are the only public corporations
not currently subject to legislative approval.
CHAIR JAMES replied in the affirmative. She said that by HJR 52
she is adding chief administrators of public corporations to
Article III, Section 26, of the state constitution.
REPRESENTATIVE WHITAKER asked if the current procedure is
"broken" and if there are specific areas that Chair James has
identified and wants to change.
CHAIR JAMES answered yes and cited the Permanent Fund Board as
her specific area of concern. For example, when former Governor
Hickel came into office, he dismissed the entire Permanent Fund
Board and re-established the board with his own appointees. She
said she does not believe partisan people should be managing vast
amounts of public funds through public corporations. She
reiterated the necessity of maintaining continuity on the public
corporations because new board members simply do not have the
experience that a productive, older board member has to offer.
Number 1019
REPRESENTATIVE WHITAKER voiced his understanding that each member
of a board would be subject to approval by the legislature.
CHAIR JAMES confirmed that. She acknowledged that sometimes the
legislature does deny a confirmation, and offered her belief that
most members of boards and commissions are chosen on a partisan
basis.
REPRESENTATIVE KERTTULA said she is thinking about HJR 52 from a
different angle. She wonders why Article III, Section 26, was
set up the way it is. Alaska has a "strong governor"
administration, and yet the legislature requires all boards and
commissions to obtain confirmation from the legislature. She
also wonders what, if any, public corporations, existed when the
state constitution was written. She suspects that maybe the
constitution drafters' intention would have been to include all
boards, commissions and public corporations if public
corporations had existed at that time. She commented that what
bothers her regarding HJR 52 is the exception, because that is
when things start getting political.
Number 1215
CHAIR JAMES said if she found exceptions were to be made, she
would find them in boards and commissions rather than in public
corporations. The confirmation process is more than the vote on
the floor: it is the public process of the hearing and requiring
the candidate to appear before the committee. She reiterated
that public process is missing in public corporation appointees.
Her reasoning is that if boards and commissions are so important
as to be confirmed by the legislature, then certainly public
corporations are much more important due to the vast amounts of
public funds that they control. She suggested that if there are
no exceptions for boards and commissions, then maybe there ought
not to be any for public corporations.
Number 1387
REPRESENTATIVE OGAN made a motion to move HJR 52 out of committee
with individual recommendations and the attached fiscal note.
There being no objection, HJR 52 moved from the House State
Affairs Standing Committee.
HB 124-INCOME TAX ON INDIVIDUALS & FIDUCIARIES
Number 1410
CHAIR JAMES announced the next order of business is 2d SPONSOR
SUBSTITUTE FOR HOUSE BILL NO. 124, "An Act relating to the
taxation of income and providing a credit for certain property
taxes, and permitting the legislature to use certain income tax
proceeds to make appropriations for public schools."
CHAIR JAMES explained that 2d SSHB 124 is greatly changed from
the last time the committee discussed the bill. It is still a
flat income tax and a selected income tax because it only taxes
W-2 earnings, business profit/loss, rents, royalties,
partnerships, subchapter (S) corporations, trusts and farming.
However, it does not tax retirement income, capital gains,
dividends or investments. She noted that she had exempted
investments from the flat income tax to encourage investments
because she believes investments in Alaska serve to provide jobs
for Alaskans. She stated that the Department of Revenue had
prepared a fiscal note for 2d SSHB 124. In preparing 2d SSHB
124, she said she not only wanted to target specific income but
also wanted to make sure that Alaska had its own tax, and not
"piggyback" on to federal tax.
Number 1610
CHAIR JAMES indicated the $12,500 threshold is applied to each
individual in Alaska and that 2d SSHB 124 is a very simple tax,
easy to administer and easy to pay. It almost excludes the need
for auditing because any auditing that does arise will be
accomplished by the federal government. One important change,
she said, is that an individual is required to pay tax on the
amount that was required to be reported, not on what an
individual actually did report. This closes a loophole in the
original bill for people who do not report all their income
correctly.
REPRESENTATIVE KERTTULA asked whether investments are exempt.
CHAIR JAMES answered in the affirmative.
Number 1819
REPRESENTATIVE KERTTULA asked if a straight salary is all that
would be counted toward the $12,500 threshold.
CHAIR JAMES replied in the affirmative and specified that if a
person only earned wages, that is all that would be taxed; there
would be no tax on stocks or retirement income.
REPRESENTATIVE KERTTULA said she saw a problem with that very
thing. She feels that people who are wealthy enough to have
stocks normally would have an easier time paying this tax than
people who are on straight wages.
CHAIR JAMES responded that most people who have stocks are also
making money in other ways. It is her opinion that wealthy
people invest their money and create jobs for people who do not
have much money. She believes 2d SSHB 124 will result in a tax
collection of $250 million, but she does not have the figures yet
to prove her belief; the Department of Revenue is still working
on producing a valid fiscal note. Her personal belief is that
within the next three years, the legislature will have to impose
some form of tax on Alaskans. In presenting 2d SSHB 124, she
proposes to introduce the idea to Alaskans and get them to think
about the best way to impose a fair tax; she also hopes to avoid
a complicated tax law or a tax that simply "piggybacks" onto the
federal income tax.
Number 2071
REPRESENTATIVE GREEN inquired as to the status of the property
tax credit that had been offered with the original HB 124.
CHAIR JAMES answered that the property tax credit and school tax
are no longer part of 2d SSHB 124.
Number 2215
REPRESENTATIVE KERTTULA made a motion to adopt the proposed CS
for 2d SSHB 124, version 1-LS0232\N, Kurtz, 2/15/00, as a work
draft. There being no objection, it was so ordered. [HB 124 was
held for further discussion.]
HB 138-INCOME TAX ON INDIVIDUALS & FIDUCIARIES
Number 2232
CHAIR JAMES announced the next order of business is HOUSE BILL
NO. 138, "An Act relating to the taxation of income."
REPRESENTATIVE MOSES, speaking as sponsor of HB 138, presented
the following sponsor statement:
House Bill 138 is intended to raise revenue for the
State of Alaska. With a steadily growing fiscal gap,
the time is long overdue for us, as the policy makers
of this great state, to take a long hard look at our
future.
House Bill 138 implements a state income tax upon the
taxable income of every resident, nonresident and part-
year resident individual and fiduciary in the state.
The tax imposed is determined as a percentage of the
taxpayer's entire federal income tax liability. The
tax is introduced to the taxpayer on a gradual basis,
starting at 5 percent under $20,000; 10 percent over
$20,000 for the first year of implementation, 10
percent/15 percent the second year and finally to 15
percent/20 percent thereafter.
The tax will be levied only against income earned
within the state of Alaska. House Bill 138 allows
credits against the tax for: (a) income sources earned
in other states or territories, (b) the amount of any
real and personal property paid to a municipality
within the state.
Number 2337
REPRESENTATIVE MOSES said HB 138 brings Alaska into the tax
picture where it was 20 years ago when Alaskans paid a percentage
of their federal income tax to the state. He informed the
committee that a great portion of the Alaskan workforce, 70,000
workers, is nonresident. It is his opinion that they make money
but spend as little as possible in the state so that they can
take money back to wherever they originally came from. He noted
that nonresident workers take $1 billion of non-taxed money out
of the state.
REPRESENTATIVE MOSES explained that he had drafted into HB 138 a
100 percent credit for personal property tax so that nonresidents
would bear the greater impact of HB 138. Nevertheless, a
nonresident who purchased property in the state also would
receive the property tax credit. By writing in a property tax
credit, he proposed to encourage municipalities to institute a
property tax where they do not have one in place now.
REPRESENTATIVE MOSES emphasized that the legislature has to do
something to raise revenue. He suggested that the state cannot
continue to function without revenue, and further delay will only
make matters worse. He prefers to see both HB 138 and HB 137
move on to the Finance Committee, hoping that that committee will
produce a complete tax package to eliminate the deficit facing
Alaska.
Number 2483
REPRESENTATIVE MOSES mentioned that in 1995 a nonpartisan task
force had recommended that the legislature reinstate an income
tax. He recognized that many people other than nonresidents come
to Alaska with no intention of staying; they want to make a nest
egg and return to their original homes; these people do not want
to pay taxes because it reduces their nest egg, and neither do
they want to spend money in the state, if at all possible. That
is his summary as he sees the situation in Alaska.
Number 2544
REPRESENTATIVE SMALLEY asked if Representative Moses had income
and administrative cost projections for HB 138 to show the
committee.
BRETT FRIED, Economist, Division of Income & Excise Audit
Division, Department of Revenue (DOR), said he did have
projections for revenue and costs for HB 138, although it was
difficult to figure. The DOR had arrived at a revenue figure by
using Internal Revenue Service (IRS) estimates of income,
gathered from tax returns submitted by Alaskans to the IRS.
However, the IRS statistics of income data are broken out by
adjusted gross income categories, not federal tax liability,
which makes it difficult to project revenue forecasts.
MR. FRIED noted that one reason the DOR experienced difficulty in
figuring revenue income for HB 138 is because HB 138 is a
graduated income tax based on federal income tax liability.
Also, there is no method currently available to match property
tax and personal income tax. Therefore, the DOR had used the
U.S. Census Bureau figure of 67 percent home ownership in order
to adjust revenues for the property tax credit.
MR. FRIED told members he envisions the HB 138 tax resulting in
$19.6 million of revenue in fiscal year (FY) 2001. For FY 2002,
FY 2003, and FY 2004, the DOR estimates an annual revenue of
$54.9 million, $86.2 million, and $101.9 million, respectively.
These revenue projections are based upon a first-year tax rate of
5 percent, a second-year tax rate of 10-15 percent, and a third-
year tax rate of 15-20 percent. He suggested that the cost of
administering HB 138 would be about $1.2 million for operating
expenses in FY 2001; $2.6 million operating expenses and capital
expenses at $2.2 million in FY 2002; and $3.6 million for
operating expenses and $1.2 million capital expenses in FY 2003.
There would only be operating expenses of $3.5 million each
fiscal year after FY 2003.
Number 2814
REPRESENTATIVE KERTTULA asked how HB 138 tax percentages compare
with other states. She said 20 percent is high, in her opinion.
MR. FRIED replied that Rhode Island, North Dakota and Vermont use
a percentage of the federal income tax liability to collect state
income tax. Vermont charges 25 percent state income tax of the
federal income tax liability, and Rhode Island charges 27
percent.
Number 2907
CHAIR JAMES mentioned that Alaska's tax percentage was 16 percent
at the time the state income tax was abolished. She said she is
not willing to move the bill today. [HB 138 was held.]
TAPE 00-6, SIDE B
HB 137-MUNICIPAL DIVIDEND PROGRAM
Number 2957
CHAIR JAMES announced the next order of business is HOUSE BILL
NO. 137, "An Act relating to the municipal dividend program; and
providing for an effective date."
REPRESENTATIVE MOSES spoke about the sponsor statement for HB
137. He said HB 137 is a simple, noncontroversial bill for a
municipal dividend-sharing program. He explained that one way to
reduce the state budget would be to pass services back to local
government. For example, the state maintains roads; perhaps that
service could be passed back to local government. He believes
that the legislature should take some of the permanent fund
earnings and give them to local government because, in his
opinion, that gives government back to the people. He envisions
increasing municipal sharing for local education under HB 137.
However, he acknowledged that many people in the state want their
permanent fund dividend to grow, whereas HB 137 would slow its
growth rate. He emphasized that HB 137 would encourage
communities to incorporate so that they could collect the tax.
Nevertheless, he realizes it is difficult to arrive at a fair
formula for HB 137.
Number 2739
CHAIR JAMES indicated she agrees with the general concept of HB
137. She remarked that the famous [permanent fund advisory] vote
of September 14, 1999, is the driving motivator behind some of
the proposed tax legislation. She emphasized that everyone seems
to have a different idea of what the September vote meant.
Personally, she had voted "yes" because she is a
"constitutionalist" and the Alaska State Constitution
specifically says that the legislature has control over how the
permanent fund earnings are spent. She acknowledged that without
having a spending plan, however, government grows naturally and
would soon have spent all of the permanent fund earnings. She
does believe that Alaska should have a dividend program because
it protects the corpus of the fund, she added. She believes the
public might support the expenditure of permanent fund earnings
by the legislature if the public could see that it benefited
their local communities.
CHAIR JAMES noted that some public services - such as
infrastructure, police protection and public health - might be
better administered at the local level. She said she is willing
to consider HB 137 as an aid in designing a use of the permanent
fund earnings in a way that the public would accept. She
acknowledged that the higher the dividend amount, the more danger
results to the public mentality in regard to productive effort.
However, she is not in favor of a cap, and before the legislature
touches one cent of the permanent fund earnings, the legislature
needs to design a dividend program that will work for the long
term. She said the permanent fund dividend (PFD) program now in
place does not function properly because it is based on a five-
year average. The legislature should design a system to provide
a dividend that allows the public to buy the things they need
and, at the same time, gives the legislature authority from the
constituency to protect the permanent fund. This will take much
effort on the part of the legislature, and the legislature should
start now.
Number 2502
REPRESENTATIVE MOSES commented that the September 14, 1999,
election was flawed and really did not tell the legislature
anything. He emphasized that the legislature is a policy-making
body and knows what should be done and what the state needs. He
expanded on that subject by saying that as leaders, legislators
need to work to change the public mind set of "cut the budget."
CHAIR JAMES said that the legislature has raised taxes anyway,
despite the September vote, by imposing user fees on many state
services. She reminded the committee that when the legislature
cut municipal assistance and revenue sharing, the legislature
automatically caused people in local communities to pay more for
the same services that they had been receiving. She added that,
in her opinion, a government service for which an individual pays
is a tax; therefore, she does not see any difference between user
fees and taxes.
Number 2349
FRANK KELTY, Mayor, City of Unalaska, testified via
teleconference from Unalaska in support of HB 137, which he said
is very important legislation. Noting that his community had
experienced cuts to municipal revenue sharing, he said Unalaska
subsidizes the state jail contract at a cost of $250,000 per
year. Furthermore, two years ago the water quality employee was
laid off, and last year the food safety inspector was laid off
and the office was completely closed; consequently, he envisioned
that HB 138 would help Unalaska offset some of those costs. He
said that the City of Unalaska takes care of all of its own road
maintenance, ports and harbors. He indicated that he believes HB
137 is a program that communities could use to address their
needs. He explained that Unalaska is not looking for a handout
but already has a 3 percent sales tax, an 11.75 percent mil rate,
and a 2 percent local landing tax on all fish delivered; they
also fund their school at the maximum amount allowed. He
emphasized that Unalaska does take pride in its community. He
urged the committee to move HB 138 forward.
Number 2219
CHAIR JAMES asked Mayor Kelty how the statewide initiative to
limit property tax will affect Unalaska.
MR. KELTY replied that Unalaska would feel the impact in personal
property tax revenues. Right now, Unalaska realizes about $2.7
million each year from real property tax. He emphasized that
Unalaska will definitely oppose the initiative.
CHAIR JAMES noted that HB 137 needs some more drafting; it says
Alaska needs a municipal dividend program but does not say how
that will be accomplished. She agreed with Representative Moses'
statement that government closest to the people is the most
effective. She emphasized that decision making needs to return
to the local level where every individual has a right to contact
his or her borough assembly members and attend borough assembly
meetings. She offered her opinion that Alaskans want the state
to stop spending money, which is a psychology that the
legislature can overcome by putting government closer to the
people. [HB 137 was held.]
HB 335-STATE RETIREMENT SYSTEMS AND BENEFITS
Number 2076
CHAIR JAMES announced that the next order of business is HOUSE
BILL NO. 335, "An Act relating to information contained in
retirement system records; relating to retirement boards;
relating to procedures and hearings under state retirement
systems; relating to benefits for reemployed retired members of
retirement systems; relating to eligibility for normal retirement
for members of the teachers' retirement system who have Alaska
BIA credited service; relating to disability benefits for members
of state retirement systems; relating to deduction of premiums
from retirement benefits; relating to protection of, and
assignment and transfer of, amounts held in retirement systems;
relating to retirement benefits for certain employees earning
high salaries; relating to qualified domestic relations orders in
state retirement systems; relating to the definition of
'retirement fund' in the teachers' retirement system; relating to
membership of state employees in the teachers' retirement system;
relating to refund of contributions made to the judicial
retirement system or to the former elected public officers
retirement system and repayment of refunded contributions in
those systems; relating to self-insurance and excess loss
insurance for persons receiving benefits from a state retirement
system; relating to participation of elected officials in the
public employees' retirement system; relating to reinstatement of
credited service in the public employees' retirement system after
a refund because of certain levies; relating to the level income
option benefit under the public employees' retirement system;
relating to participation of employees of political subdivisions
and public organizations in the public employees' retirement
system; relating to penalties for attempts to defraud the public
employees' retirement system; relating to the definition of
'pension fund' in the public employees' retirement system;
relating to calculation of years of service and of benefits under
the public employees' retirement system for non certificate-
holding employees of certain educational employers; and relating
to individual accounts maintained for members of the former
elected public officers retirement system."
Number 2060
MELINDA HOFSTAD, Legislative Assistant to Representative Bill
Hudson, Alaska State Legislature, read the following sponsor
statement:
House Bill 335 has been introduced at the request of
the Division of Retirement and Benefits, and is
essentially a cleanup bill. According to the
department, there are federal laws, court settlements
and other technical issues that need to be addressed in
an updated state law. Also addressed in this
legislation are some efficiency measures requested by
the various retirement boards. There has not been a
cleanup bill in many years and many of the issues
addressed in HB 335 are longstanding ones.
This legislation is aimed at addressing issues
involving clarification of current practices and law,
compliance with new federal laws, compliance with
various settlements, and board efficiencies. We have
made every effort to stay away from policy changes and
just address the cleanup issues.
There is nothing in this legislation that enhances or
diminishes any retirement benefit for active employees
or retirees in any public retirement system, and no
section in this bill will increase the employers'
costs.
Number 1946
REPRESENTATIVE SMALLEY made a motion to adopt the proposed CS for
HB 335, version 1-LS1217\H, Cramer, 2/13/00, as a work draft.
There being no objection, Version H was before the committee as a
proposed CS.
GUY BELL, Director, Division of Retirement and Benefits,
Department of Administration, said the proposed CS has 65
sections, each of which is explained in a detailed sectional
analysis. He noted that he has cooperated with the Teachers'
Retirement Board, the Alaska Public Employees' Retirement Board,
and a number of groups that represent public employees to ensure
that all cleanup items were included. He explained that statutes
pertaining to the Teachers' Retirement System (TRS), the Public
Employees' Retirement System (PERS) and the Judicial Retirement
System have not been cleaned up for many years. His focus is on
addressing administrative issues, some court issues, some
settlements, and board procedural issues as requested by the
boards.
Number 1837
MR. BELL mentioned that many sections are repetitive and he would
indicate which those were. He indicated Section 1 establishes
statutory authority for the Division of Retirement and Benefits
to maintain confidentiality of member records. Section 1 would
allow the release of member records only under specific
authorized circumstances; the release would only be to the
individual or to the individual's guardian; to the individual's
employer or former employer; to a state agency authorized to
obtain confidential records; or to a retiree organization that
represents members of the system.
MR. BELL explained that Section 2 addresses a problem that the
boards have had regarding lack of attendance and participation on
the part of physician members. Two five-member boards serve the
TRS and PERS, and when assigned a medical disability appeal, each
board has an additional two licensed physicians who are supposed
to participate in the medical hearing and the decision. As the
law is written now, two physician members are appointed by the
governor from each judicial district in the state. He believes
HB 335 would simplify the procedure by requiring the appointment
of only two physician members and two alternate physician members
to serve on the board, thus limiting physician members to four
and not having it be subject to judicial districts. The bill
also allows only one physician board member to sit on a medical
disability appeals hearing if there is difficulty in finding two
physician board members to attend.
Number 1698
MR. BELL indicated Section 3 does cause fiscal impact. He
informed the committee that the boards [TRS and PERS] are
requesting an honorarium of $150 per day for members who
participate on the board, which is the same amount as paid to the
Alaska State Pension Investment Board members. He reminded the
committee that the PERS board meets from 20 to 30 days a year,
mostly regarding disability appeals that last all day. A fiscal
note has been submitted for Section 3 of the proposed CS, and it
is funded by the retirement funds [TRS and PERS].
Number 1517
MR. BELL discussed Section 4. He said that the TRS Board does
establish a quorum to conduct business, but there is no specific
authority set in statute to do so. Therefore, Section 4 gives
the TRS Board specific authority to adopt regulations at finding
a quorum for the conduct of its business.
MR. BELL explained that Section 5 addresses the hearing
procedures of the TRS Board. The purpose is to simplify and make
consistent the hearings process for both TRS and PERS Boards.
Section 5 gives authority to appoint hearing officers, and even
then an appellant can go directly to the board for final review
of his/her case. He mentioned that this section also places into
statute what to do in a tie vote; basically, the hearing arises
from a denial of benefits by the administrator [Director of the
Division of Retirement and Benefits], burden of proof is on the
appellant, and if there is a tie vote, effectively the
administrator's decision is upheld. Finally, the appellant can
go to court if he/she does not agree with the Division of
Retirement and Benefits' decision.
Number 1366
MR. BELL noted that Section 6 addresses an inequity in the law
relating to people who elect early retirement but then return to
work for a TRS employer. He explained that a person who elects
early retirement accepts an actuarially reduced benefit. If that
person is re-employed, the second benefit is based on re-
employment but no adjustment is made for an early retirement
benefit reduction. Therefore, Section 6 allows a make-whole
adjustment after a person returns to TRS employment. He assured
the committee that there is no cost to the retirement system for
Section 6.
CHAIR JAMES asked how early retirement and return to work
functions currently; in particular, does the employee now receive
two paychecks, one for retirement and one for employment?
Number 1253
MR. BELL answered that when a retiree returns to work in the
retirement system, the retirement benefit stops and then that
person starts to accrue additional service toward a second
retirement benefit. A person who elects early retirement accepts
an actuarial adjustment reducing his/her retirement because the
person will be receiving benefits for several extra years. When
a person returns to work, the early retirement choice should not
apply anymore, but it does currently. When the person retires
the second time, he added, he/she is paid the original early
retirement benefit choice plus a small-increment benefit for the
additional time worked. Section 6 would allow adjustment for the
retiree's return to work and suspension of early retirement
benefits.
Number 1055
CHAIR JAMES said she understands how Section 6 works but
expressed concern about the effect. She emphasized that she is
not a real supporter of retirement incentive programs (RIPs)
because they result in "brain drain" and there is a cost to the
public. She reminded the committee that she is not totally
convinced that "retiree return to work" is beneficial to the
public or that retiree return repays the public for lost
expertise. Section 6 allows the returning retiree to be made
whole, but it does not make the heavy loss whole for the public,
and she is not convinced that this is a good policy decision. It
is a policy issue.
MR. BELL said he personally knows people who have elected early
retirement from state work but not as RIP employees. He
acknowledged that these retirees went out of state, worked for a
while at something else, then decided to return to Alaska and
finish out their working years within the state retirement
system.
Number 0842
CHAIR JAMES asked if the RIP employees had the same opportunity
as non-RIP employees to return to state service.
MR. BELL answered no because specific requirements are placed on
RIP employees.
MR. BELL said Section 7 addresses an odd quirk in the TRS law
relating to Bureau of Indian Affairs (BIA) service. A teacher
must work eight years to become vested in TRS. However, TRS
allows a credit of three years of Alaskan BIA service toward the
eight-year vesting requirement. The history of BIA teacher
service is that a number of teachers in Alaska started out as BIA
teachers. However, the way the law reads now is "a person who
has attained an age of at least 60 years, has at least five years
of membership service, and has at least three years of Alaska
BIA service." Therefore, Section 7 of the proposed CS would
change the wording to say "BIA service added to TRS service must
equal eight years." He said he envisions that a teacher could
have an increment of whatever years of BIA service and not be
bound to a minimum of three years BIA service in order to attain
TRS vesting.
Number 0689
MR. BELL informed members that Section 8 is a clarification of
the Division of Retirement and Benefits policy with respect to
inflation adjustments made to a disability benefit. He mentioned
that TRS allows a 50 percent base benefit for disability plus 10
percent increments for each dependent child. The Division of
Retirement and Benefits policy has been to apply inflation
adjustment just to the base benefit; that will be put in statute
in Section 8.
MR. BELL said Section 9 addresses disabilities and when they
discontinue. The law now says the person is no longer disabled
when he/she has recovered. Section 9 would add an income test to
recovery from a disability, and it would say that the person is
considered to have recovered if he/she is re-employed and earning
at least 75 percent of his/her pre-disability compensation
adjusted for inflation.
Number 0577
REPRESENTATIVE KERTTULA asked Mr. Bell how a person might be
earning more and still be on disability at 75 percent and not a
full 100 percent. She added that she sees the percentage of
return from disability as a policy issue.
MR. BELL noted that theoretically a person could be receiving a
disability benefit and earning some income, which would make that
person's total compensation more than 100 percent of what he/she
was earning before the disability. The Division of Retirement
and Benefits' view is that if a person has recovered, he/she is
going to return to work; the division thought a 75 per cent rule
was reasonable.
Number 0456
CHAIR JAMES said she understood, then, that Section 9 contains no
provision to add a person's new earning capacity and the
disability payment, and to reduce the disability payment to make-
whole.
MR. BELL answered that nothing in the law now would accomplish a
100 percent make-whole arrangement.
REPRESENTATIVE KERTTULA said she is still worried about leaving
Section 9 at 75 percent rather than 100 percent.
CHAIR JAMES agreed with Representative Kerttula that there should
be a flat, across-the-board 100 percent make-whole arrangement
until the disabled person is made whole from the disability,
particularly if the disability is work-related. She asked Mr.
Bell whether Section 9 could be drafted to authorize a 100
percent make-whole arrangement - but not more than 100 percent
whole.
Number 0261
MR. BELL replied that the Division of Retirement and Benefits can
draft Section 9 as requested.
REPRESENTATIVE KERTTULA agreed with Chair James' 100 percent
make-whole request.
MR. BELL stated his understanding that Chair James requests not
less than and not more than 100 percent.
CHAIR JAMES answered in the affirmative, reiterating that she
thinks 100 percent is a better policy. She requested that Mr.
Bell come up with an amendment to Section 9 of the proposed CS to
that effect.
REPRESENTATIVE GREEN asked whether Section 9 would automatically
adjust for inflation.
MR. BELL replied in the affirmative.
Number 0199
MR. BELL turned attention to Section 10, which addresses the
filing deadlines for disabilities and sets them at six months
from the date the member's disability began or 90 days after the
member terminates employment, whichever is later, unless there
are extraordinary circumstances. He said this is a requirement
in the occupational disabilities section of PERS. There are no
filing deadline requirements in the TRS with respect to one type
of appeal, he explained, and the division is trying to make
deadlines consistent between PERS and TRS. He stated that
extraordinary circumstances could include a member's
incapacitation or the member's not even being aware that he/she
could apply for disability [benefits].
Number 0067
MR. BELL explained that Section 11 confirms current practice
relating to the ad hoc post-retirement pension adjustment, which
is an inflation/consumer-price-index-based adjustment to retiree
benefits. Section 11 confirms that the TRS Board does have an
advising role regarding the pension adjustment.
MR. BELL pointed out that Section 12 clarifies that the Division
of Retirement and Benefits can deduct retiree insurance premiums
from retirement checks. He noted that insurance premiums are for
the medical plan, the dental plan, the vision plan, the audio
plan and the long-term care plan. This is a current practice of
the division that Section 12 confirms [in statute].
TAPE 007, SIDE A
Number 0014
MR. BELL indicated Section 14 removes duplicative language out of
a TRS statute, AS 14.25.037 [listed under Section 5 of the
proposed CS], related to hearings. The proposed CS establishes a
single statute that deals with hearings.
MR. BELL informed the committee that Section 15 clarifies
language relating to divorces and distribution of member
contributions accounts under a divorce through a qualified
domestic relations order (QDRO). Section 15 allows the division
to divide member contribution accounts in addition to the
benefits, which people have asked the division to do in order to
end frustration caused by only one account. Currently, once the
division writes a check to the member, the member then has to
write a check to the former spouse.
Number 0139
REPRESENTATIVE OGAN asked if QDROs are done by court order.
MR. BELL replied in the affirmative. He emphasized that a QDRO
has to be filed with a court and the court has to approve it;
essentially, a QDRO is an order from a court.
MR. BELL explained Section 16. It allows a person to roll over
his/her member contribution account balance directly to an
individual retirement account (IRA). Currently, the division has
to send the money to the member, who must write a check to
his/her IRA provider. A subsection to Section 16 also allows
deductions, subject to member authorization, to pay membership
dues to nonprofit retirement organizations that represent system
members such as National Education Association (NEA) retirees,
the Retired Public Employees Association of Alaska, and a number
of other retirement organizations.
Number 0243
MR. BELL said Section 17 and 18 address the fraud section of the
TRS code. He indicated fraud is a class A misdemeanor. Thus,
this brings the TRS statute up to date with the appropriate
section to the Criminal Code. Section 19, he noted, is required
by the Internal Revenue Service (IRS), as set out in 26 U.S.C.
401)a)(17), which limitation is set at $150,000.
REPRESENTATIVE OGAN asked what happens if the U.S.C. code
changes. Does a change void the state statute?
MR. BELL replied that by including the U.S.C. in Section 19, the
division is trying to anticipate any changes in the future. If
the U.S.C. limitation increases, Section 19 increases; if the
U.S.C. is repealed, Section 19 is repealed.
Number 0465
REPRESENTATIVE OGAN asked what would happen if the meaning of
U.S.C. 401(a)(17) changes or the code numbering changes, for
example.
Number 0528
MR. BELL replied that one way to address that possibility would
be to say "or its successor." He said he does not know how often
U.S. codes change.
CHAIR JAMES said she thinks it is very remote that the code
numbering would change; generally, the changes are incremental
and not whole. The only change she could imagine happening is if
the federal government changed the entire 26 U.S.C. code; and, of
course, the federal government understands that they would be
affecting 50 states if they made such a change.
REPRESENTATIVE KERTTULA said it is a drafting question, and all
the committee has to do is request new drafting from the
drafters.
CHAIR JAMES replied that she would follow up with the drafting
request regarding "or its successor."
Number 0680
MR. BELL explained that Section 20, a companion to Section 15,
addresses the definition of what the QDRO can include, which is
the member contribution account.
MR. BELL explained that Section 21 was drafted at the request of
division auditors. One year, division auditors had examined
records and found that the division needed a statute to clarify
that income earned by the TRS fund does belong to the fund. That
has been the practice of the division since the fund was
established in the 1950s.
MR. BELL indicated Section 22 addresses a problem with the
definition of "teacher" as it applies to the Department of
Education and Early and Early Development. Currently, the
statute says that the commissioner and all supervisory employees
of the department are in the TRS. However, there are
departmental supervisors who are not in TRS, so Section 22
changes the law to include a person in the department whose job
description requires certification as a teacher or administrator.
Number 0809
MR. BELL informed the committee that Section 23 deals with
missing and inconsistent language regarding the judicial
retirement system; the first missing language is the IRS-related
26 U.S.C. 401(a)(17), in parallel with Section 15 in TRS.
Section 24 adds language to the judicial retirement system that
is already in other systems relating to receiving a principal and
interest refund when a person has made indebtedness payments;
once again the issue is language consistency. Section 25
addresses the Division of Retirement and Benefits under a QDRO
paralleling TRS Section 14 and also allows deduction of retiree
membership dues paralleling TRS Section 14.
MR. BELL noted that Section 26 authorizes the deduction for
insurance premiums of retirees that was already discussed in
Section 12. Sections 27 and 28 discuss QDROs as they apply to
the judicial retirement system and the National Guard Naval
Militia retirement system, respectively. Section 29 specifically
authorizes self-insurance of medical, dental, vision, audio and
long-term care plans, which confirms current practice.
MR. BELL explained that Section 30 addresses membership of the
PERS Board. The board has five members, two who are elected by
the membership and three who serve by virtue of their being
appointees to the Personnel Board. Because of numerous PERS
meetings and the workload, PERS members have requested that
appointments be made separate from the Personnel Board. The last
part of Section 30 staggers appointments by retaining current
PERS board appointees until their current terms on the Personnel
Board expire.
MR. BELL indicated Section 31 addresses how the division handles
PERS board elections. Currently, the winner must have an
absolute majority of the votes cast, which means that there is a
runoff whenever the division holds an election. By eliminating
the majority requirement, the division hopes to save money; they
believe it is an appropriate change. If Section 31 is adopted,
the person with the most votes cast in an election will be the
winner.
Number 1143
REPRESENTATIVE OGAN suggested that perhaps Section 31 should
allow for an instant runoff provision.
CHAIR JAMES said she has belonged to other organizations that
allow instant runoffs, especially when there are multiple
candidates, and she believes it is easy to administer. She asked
Mr. Bell to think about that election change option between now
and the next time the committee discusses the proposed CS.
MR. BELL noted that Section 32 addresses physician membership to
the PERS board and introduces the same language already discussed
in TRS Section 2. Section 33 is the honorarium payment for PERS
Board members that is parallel to TRS Section 3. Section 34
allows the board to adopt regulations to finding a quorum, and in
a subsection gives the PERS board the authority to set the
contribution surcharge for non-certificated school district
employees who elect to have their service calculated using the
TRS schedule. He mentioned that as a result of SB 9 (passed last
year), a lawsuit and a settlement, the division has agreed that
it would be appropriate for the PERS board to set the
contribution surcharge; therefore, it is done through a public
process, with the PERS aboard having final authority over the
surcharge.
Number 1330
MR. BELL indicated Section 35 is similar to TRS Section 5, which
has to do with hearings authority and procedure. Section 36
addresses elected officials and their membership in PERS.
Currently, he informed the committee, the law says it is up to
the elected official as to whether he/she wants to be in PERS,
but the law also says that the employer will determine who is in
PERS. For example, a borough assembly will determine that
assembly members will not be in PERS, but an individual member
theoretically, under the law, has the ability to determine
whether he/she is in PERS. Therefore, Section 35 rids the
statute of that contradiction by allowing the borough assembly to
decide whether they will be in PERS.
MR. BELL remarked that Section 37 is the early retirement
deduction change discussed in TRS. Sections 38 through 42
clarify provisions regarding irrevocable election by non-
certificated school employees mandated by SB 9, passed last year.
Currently, the law says that an early retirement election is
irrevocable, but the division has agreed through the lawsuit and
settlement process with NEA and other groups that a person can
revoke that election.
Number 1492
MR. BELL explained that Section 43 discusses the filing deadlines
for non-occupational disability benefits parallel to TRS Section
10. Section 44 discusses when a person is recovered under the
compensation rule; Mr. Bell said he would return to the committee
with an amendment of 100 percent versus 75 percent. He mentioned
that Section 45 is the same as Section 43 except with respect to
occupational disability, and Section 46 is the same as Section 44
except for occupational disability. Section 47, he indicated, is
a very technical clarification to allow "level income option" as
one of the benefit options in the PERS. He said the "level
income option" was repealed, but people who were hired prior to
that repeal can still choose that option because the state
constitution says that the [state] cannot diminish benefits or
options.
MR. BELL informed members that Section 48 recognizes the PERS
board's role in ad hoc post-retirement pension adjustments and is
a parallel to TRS Section 11. Section 49 is parallel to Section
15 relating to QDROs; Section 50 is parallel to TRS Section 14 on
the rollover of IRAs; and Sections 51 through 54 are parallel to
TRS language already discussed.
Number 1632
MR. BELL commented that Section 55 is about when employees can
choose to vest; for example, if an employer removes itself from
PERS, employees with less than five years are given the option of
immediately vesting. The division waives the five-year vesting
requirement, but now, under Section 55, the waiver would only
apply if it is at the employer's request. If the employees have
gone to the employer through collective bargaining and requested
that they be removed from the retirement system, the five-year
waiver does not apply to them because it is a cost to the
employer.
MR. BELL mentioned that Section 56 addresses clarification of
fraud as a class A misdemeanor, the same as TRS Section 17.
Section 57 clarifies "SB 9 application of service credit" in
agreement with NEA and the lawsuit process. Section 58 is the
highly-compensated-individual IRS code compliance section for
PERS. Section 59 clarifies that PERS invested income does belong
to the PERS fund, parallel to TRS Section 17. He indicated that
Section 60 is QDRO language paralleling TRS sections dealing with
the subject. Section 61 would remove PERS physician members from
Alaska Public Offices Commission (APOC) requirements. He said
the division has had problems in recruiting physician members
because they are required to disclose their patients, which the
division does not feel it is appropriate that physicians do.
Number 1772
REPRESENTATIVE OGAN asked if it would be appropriate to have a
disclaimer for a physician assigned to a hearing in which his/her
patient happens to be involved.
MR. BELL answered that a disclaimer is provided, and all division
board members are required to disclose any conflict. Physician
board members do excuse themselves if the appellant has had any
connection to that physician, whether in person or through
partnership.
Number 1803
MR. BELL stated that Section 62 repeals sections that are no
longer necessary with this addition to the hearings language in
PERS. Sections 63 and 64 make the Elected Public Officers
Retirement System (EPORS) language consistent with PERS and TRS
language. Finally, Section 65 concerns initial appointment of
PERS board members with conversion from the Personnel Board;
existing Personnel Board members will continue to serve through
the end of their terms.
REPRESENTATIVE SMALLEY announced for the record that he is a BIA-
accredited teacher, a retired teacher in the TRS, has
participated in the RIP, and also is vested in PERS, but that he
does not believe his involvement in any of those will impact his
decision regarding the proposed CS.
Number 1896
REPRESENTATIVE KERTTULA announced that she, her husband, her
father and her sister all have involvement with the retirement
systems.
CHAIR JAMES said she thinks all the committee members have
involvement in one way or another regarding the proposed CS. She
reminded Mr. Bell that he is to work with her staff to draft
amendments for the proposed CS, which would be discussed at the
next committee meeting. [HB 335 was held.]
ADJOURNMENT
Number 1917
There being no further business before the committee, the House
State Affairs Committee meeting was adjourned at 10:05 a.m.
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