Legislature(2005 - 2006)CAPITOL 106

04/02/2005 10:00 AM STATE AFFAIRS


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ HB 133 LOCAL BOUNDARY COMMISSION REGS & POWERS TELECONFERENCED
Moved CSSSHB 133(STA) Out of Committee
+= HB 170 PUB EMPLOYEES/TEACHERS RETIREMENT BOARDS TELECONFERENCED
Scheduled But Not Heard
+= HB 177 STATE EMPLOYEE RETIREMENT CONTRIBUTIONS TELECONFERENCED
Scheduled But Not Heard
+= HB 191 PUBLIC EMPLOYEE/TEACHER RETIREMENT TELECONFERENCED
Scheduled But Not Heard
+= HB 238 PUBLIC EMPLOYEE/TEACHER RETIREMENT TELECONFERENCED
Heard & Held
Bills Previously Heard/Scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
             HOUSE STATE AFFAIRS STANDING COMMITTEE                                                                           
                         April 2, 2005                                                                                          
                           10:05 a.m.                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Paul Seaton, Chair                                                                                               
Representative Jim Elkins                                                                                                       
Representative Bob Lynn                                                                                                         
Representative Berta Gardner                                                                                                    
Representative Max Gruenberg                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Carl Gatto, Vice Chair                                                                                           
Representative Jay Ramras                                                                                                       
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 133                                                                                                              
"An Act relating to regulations  of the Local Boundary Commission                                                               
to provide standards and  procedures for municipal incorporation,                                                               
reclassification,  dissolution,  and certain  municipal  boundary                                                               
changes; and providing for an effective date."                                                                                  
                                                                                                                                
     - MOVED CSHB 133(STA) OUT OF COMMITTEE                                                                                     
                                                                                                                                
HOUSE BILL NO. 238                                                                                                              
"An Act relating to contribution  rates for employers and members                                                               
in the defined  benefit plans of the  teachers' retirement system                                                               
and the  public employees'  retirement system  and to  the ad-hoc                                                               
post-retirement  pension adjustment  in the  teachers' retirement                                                               
system;  requiring insurance  plans  provided to  members of  the                                                               
teachers' retirement system, the  judicial retirement system, the                                                               
public  employees'  retirement  system, and  the  former  elected                                                               
public  officials   retirement  system  to  provide   a  list  of                                                               
preferred  drugs;  relating  to defined  contribution  plans  for                                                               
members  of  the  teachers'  retirement  system  and  the  public                                                               
employees'  retirement system;  and  providing  for an  effective                                                               
date."                                                                                                                          
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
HOUSE BILL NO. 170                                                                                                              
"An Act relating  to the qualifications of public  members of the                                                               
Public  Employees'  Retirement  Board and  the  Alaska  Teachers'                                                               
Retirement Board."                                                                                                              
                                                                                                                                
     - SCHEDULED BUT NOT HEARD                                                                                                  
                                                                                                                                
HOUSE BILL NO. 177                                                                                                              
"An Act  relating to employee  and employer contributions  to the                                                               
teachers' retirement system and  the public employees' retirement                                                               
system; and providing for an effective date."                                                                                   
                                                                                                                                
     - SCHEDULED BUT NOT HEARD                                                                                                  
                                                                                                                                
HOUSE BILL NO. 191                                                                                                              
"An Act relating  to defined contribution systems  for members of                                                               
the  teachers'  retirement  system   and  the  public  employees'                                                               
retirement system; and providing for an effective date."                                                                        
                                                                                                                                
     - SCHEDULED BUT NOT HEARD                                                                                                  
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 133                                                                                                                  
SHORT TITLE: MUNICIPAL BOUNDARY CHANGES/ COMMISSION                                                                             
SPONSOR(s): REPRESENTATIVE(s) COGHILL                                                                                           
                                                                                                                                
02/09/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/09/05       (H)       CRA, STA                                                                                               
02/16/05       (H)       SPONSOR SUBSTITUTE INTRODUCED                                                                          
02/16/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/16/05       (H)       CRA, STA                                                                                               
02/24/05       (H)       CRA AT 8:00 AM CAPITOL 124                                                                             
02/24/05       (H)       Heard & Held                                                                                           
02/24/05       (H)       MINUTE(CRA)                                                                                            
03/03/05       (H)       CRA AT 8:00 AM CAPITOL 124                                                                             
03/03/05       (H)       Moved CSSSHB 133(CRA) Out of Committee                                                                 
03/03/05       (H)       MINUTE(CRA)                                                                                            
03/04/05       (H)       CRA RPT CS(CRA) 5DP 2NR                                                                                
03/04/05       (H)       DP: SALMON, NEUMAN, KOTT, THOMAS,                                                                      
                         OLSON;                                                                                                 
03/04/05       (H)       NR: LEDOUX, CISSNA                                                                                     
04/02/05       (H)       STA AT 10:00 AM CAPITOL 106                                                                            
                                                                                                                                
BILL: HB 238                                                                                                                  
SHORT TITLE: PUBLIC EMPLOYEE/TEACHER RETIREMENT                                                                                 
SPONSOR(s): STATE AFFAIRS                                                                                                       
                                                                                                                                
03/30/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/30/05       (H)       STA, FIN                                                                                               
03/31/05       (H)       STA AT 8:00 AM CAPITOL 106                                                                             
03/31/05       (H)       Heard & Held                                                                                           
03/31/05       (H)       MINUTE(STA)                                                                                            
04/02/05       (H)       STA AT 10:00 AM CAPITOL 106                                                                            
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
RYNNIEVA MOSS, Staff                                                                                                            
to Representative John Coghill                                                                                                  
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION   STATEMENT:     Introduced   HB   133   on  behalf   of                                                               
Representative Coghill, sponsor.                                                                                                
                                                                                                                                
MIKE BLACK, Director                                                                                                            
Division Community Advocacy                                                                                                     
Department of Commerce, Community, & Economic Development                                                                       
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Testified  on behalf  of the  department in                                                               
opposition to HB 133.                                                                                                           
                                                                                                                                
JOHN B. "JACK" COGHILL, SR.                                                                                                     
Nenana, Alaska                                                                                                                  
POSITION STATEMENT:  Testified as  a former Representative in the                                                               
Alaska  Territorial  Legislature,  Senator in  the  Alaska  State                                                               
Legislature,  and  lieutenant  governor  of  Alaska,  during  the                                                               
hearing on HB 133.                                                                                                              
                                                                                                                                
PETE ROBERTS, President                                                                                                         
Citizens Concerned About Annexation                                                                                             
Homer, Alaska                                                                                                                   
POSITION STATEMENT:   Testified  on behalf of  Citizens Concerned                                                               
About Annexation during the hearing on HB 133.                                                                                  
                                                                                                                                
ROBERT KALLIO                                                                                                                   
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:   Testified on  behalf of himself  in support                                                               
of HB 133.                                                                                                                      
                                                                                                                                
CAM CARLSON                                                                                                                     
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:   Testified on  behalf of herself  in support                                                               
of HB 133.                                                                                                                      
                                                                                                                                
GARY PETERSON                                                                                                                   
Homer, Alaska                                                                                                                   
POSITION STATEMENT:   Testified on  behalf of himself  in support                                                               
of HB 133.                                                                                                                      
                                                                                                                                
VI JERREL, Ph.D.                                                                                                                
Anchor Point, Alaska                                                                                                            
POSITION STATEMENT:  Testified on  behalf of herself and Alaskans                                                               
Opposed to Annexation during the hearing on HB 133.                                                                             
                                                                                                                                
ALAN LeMASTER                                                                                                                   
Gakona, Alaska                                                                                                                  
POSITION STATEMENT:   Testified on  behalf of himself  during the                                                               
hearing on HB 133.                                                                                                              
                                                                                                                                
BILL BJORK, President                                                                                                           
NEA-Alaska                                                                                                                      
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   Highlighted  key points  from his  written                                                               
testimony during the hearing on HB 238.                                                                                         
                                                                                                                                
WILLY DUNNE, President                                                                                                          
Kachemak Bay Chapter                                                                                                            
Alaska State Employees' Association (ASEA)                                                                                      
Homer, Alaska                                                                                                                   
POSITION  STATEMENT:   Testified  on behalf  of  ASEA during  the                                                               
hearing on HB 238.                                                                                                              
                                                                                                                                
KATIE SHOWS, Staff                                                                                                              
to Representative Paul Seaton                                                                                                   
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:    Testified  on  behalf  of  Representative                                                               
Seaton,  Chair of  the House  State  Affairs Standing  Committee,                                                               
sponsor of HB 238.                                                                                                              
                                                                                                                                
TOM HARVEY, Executive Director                                                                                                  
NEA-Alaska                                                                                                                      
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   Testified on  behalf of  NEA-Alaska during                                                               
the hearing on HB 238.                                                                                                          
                                                                                                                                
BRADLEY FLUETSCH                                                                                                                
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   Testified on  behalf of himself  during the                                                               
hearing on HB 238.                                                                                                              
                                                                                                                                
HEATH HILYARD, Staff                                                                                                            
to Representative Mike Kelly                                                                                                    
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified on  behalf of Representative Kelly                                                               
during the hearing of HB 238.                                                                                                   
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR  PAUL  SEATON  called  the  House  State  Affairs  Standing                                                             
Committee  meeting  to order  at  10:05:33  AM.   Representatives                                                             
Elkins, Lynn,  Gardner, and  Seaton were present  at the  call to                                                               
order.   Representative Gruenberg arrived  as the meeting  was in                                                               
progress.                                                                                                                       
                                                                                                                                
10:05:54 AM                                                                                                                   
                                                                                                                                
HB 133-LOCAL BOUNDARY COMMISSION REGS & POWERS                                                                                
                                                                                                                                
10:06:08 AM                                                                                                                   
                                                                                                                                
CHAIR  SEATON announced  that  the first  order  of business  was                                                               
HOUSE BILL NO. 133, "An Act  relating to regulations of the Local                                                               
Boundary  Commission  to  provide standards  and  procedures  for                                                               
municipal   incorporation,  reclassification,   dissolution,  and                                                               
certain  municipal   boundary  changes;  and  providing   for  an                                                               
effective date."                                                                                                                
                                                                                                                                
10:06:40 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE ELKINS  thanked the  chair and  vice chair  of the                                                               
boundary   commission   for    their   helpfulness   and   e-mail                                                               
correspondence [included in the committee packet].                                                                              
                                                                                                                                
10:06:48 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE LYNN moved to adopt  the committee substitute (CS)                                                               
for the sponsor substitute (SS)  for HB 133, Version 24-LS0512\F,                                                               
as  a work  draft.   No objection  was stated  and Version  F was                                                               
before the committee.                                                                                                           
                                                                                                                                
10:07:42 AM                                                                                                                   
                                                                                                                                
RYNNIEVA  MOSS,  Staff  to Representative  John  Coghill,  Alaska                                                               
State Legislature, introduced HB  133 on behalf of Representative                                                               
Coghill, sponsor.   She said that  under state law, in  order for                                                               
an area  to be annexed,  it has to be  approved by a  majority of                                                               
the  people who  vote  in the  area that's  being  annexed.   She                                                               
stated,  "This aggregate  regulation  undermines that  intention.                                                               
What it says  is that the people within the  existing borough and                                                               
the people who  live in an area  to be annexed would  all vote on                                                               
the annexation ....   All of the votes would  be pulled together,                                                               
and  if a  majority of  that  aggregate vote  approves, then  the                                                               
area's annexed."  She said  Representative Coghill feels strongly                                                               
that that's not  legislative intent, nor is it the  intent of the                                                               
Alaska   State  Constitution.     She   added,  "This   piece  of                                                               
legislation says that  regulations that are adopted  by the local                                                               
boundary  commission have  to be  consistent with  state statute.                                                               
The commission  has, in the  past, said  that they felt  that the                                                               
constitution gave  them separate  authority from  the legislature                                                               
to  do as  they want,  but that  is not  Representative Coghill's                                                               
contention."                                                                                                                    
                                                                                                                                
10:09:24 AM                                                                                                                   
                                                                                                                                
MS.  MOSS said  that,  at  the request  of  the  speaker [of  the                                                               
House],  Section  1 was  added  during  the House  Community  and                                                               
Regional  Affairs  Standing   Committee  meeting,  regarding  the                                                               
limitations of the local boundary  commission.  Ms. Moss said the                                                               
constitution  allows   [the  boundary  commission]   to  consider                                                               
petitions, but does not give it  authority to amend a petition or                                                               
impose  additional conditions  on  the incorporation.   She  said                                                               
Section 2  was added to  the sponsor substitute,  which specifies                                                               
that,  even if  the local  boundary commission  wants to  bring a                                                               
proposal for  incorporation to the  legislature, there  still has                                                               
to be two public hearings and an election of the people.                                                                        
                                                                                                                                
10:11:05 AM                                                                                                                   
                                                                                                                                
MS.  MOSS noted  that Representative  Coghill has  recommended an                                                               
amendment  [to  be labeled  Amendment  1]  for the  committee  to                                                               
consider, which would  bring annexation in line  with how service                                                               
areas are  formed.  When a  service area is altered,  there is an                                                               
election of the  people in the service area  and, separately, the                                                               
people  in the  proposed annexed  area  hold an  election.   Both                                                               
elections require  a majority  vote of the  people.   This serves                                                               
two  purposes:   it allows  people in  an area  to be  annexed to                                                               
voice whether or  not they want to be in  a new municipality, and                                                               
it also avoids  what could be termed as a  hostile takeover.  She                                                               
offered an example.                                                                                                             
                                                                                                                                
10:12:38 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON  directed attention to  [lines 11-12 as  numbered on                                                               
Amendment 1], which read:                                                                                                       
                                                                                                                                
           (1) a proposed annexation must be approved                                                                       
     by a majority of votes on the question cast by voters                                                                  
     residing in the annexing municipality;                                                                                 
                                                                                                                                
CHAIR  SEATON  said  that  is the  language  that  establishes  a                                                               
separate  vote  for the  municipality,  and  he asked  where  the                                                               
language  was  regarding the  proposed  vote  in the  area  being                                                               
annexed.                                                                                                                        
                                                                                                                                
10:13:15 AM                                                                                                                   
                                                                                                                                
MS. MOSS  replied that that  language [is now found  in paragraph                                                               
(2)], which read as follows:                                                                                                    
                                                                                                                                
               (2)   a   proposed    annexation   or   [AND]                                                            
     detachment must be  approved by a majority  of votes on                                                                    
     the  question  cast  by voters  residing  in  the  area                                                                    
     proposed to be annexed or detached;                                                                                        
                                                                                                                                
10:14:14 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  ELKINS   asked  if  [HB  133]   deals  only  with                                                               
annexation, not unification or consolidation.                                                                                   
                                                                                                                                
10:14:29 AM                                                                                                                   
                                                                                                                                
MS. MOSS answered affirmatively.                                                                                                
                                                                                                                                
10:15:51 AM                                                                                                                   
                                                                                                                                
MIKE BLACK, Director, Division  of Community Advocacy, Department                                                               
of  Commerce, Community,  &  Economic  Development, testified  on                                                               
behalf of  the department  in opposition  to HB  133.   He stated                                                               
that the proposed legislation would  encumber [the Local Boundary                                                               
Commission's]  ability to  perform under  its job  description in                                                               
the constitution and  regulations.  In response  to Chair Seaton,                                                               
he said he has no response to Amendment 1.                                                                                      
                                                                                                                                
10:16:59 AM                                                                                                                   
                                                                                                                                
JACK COGHILL testified  as a former Representative  in the Alaska                                                               
Territorial   Legislature,   Senator    in   the   Alaska   State                                                               
Legislature, and lieutenant governor of  Alaska.  He reminded the                                                               
committee that he was also  a member of the Alaska Constitutional                                                               
Convention, as  well as the chair  of the committee that  ran the                                                               
convention.   He said his position  is that the first  Article in                                                               
the constitution  is clear:   all government originates  with the                                                               
people and is  instituted solely upon the people as  a whole.  He                                                               
said  the legislature  is  the defender  of  the constitution  to                                                               
ensure that  government structure does  not override the  will of                                                               
the people.   The government structure has to  have a legislative                                                               
approval or vote  of the people in order to  be able to establish                                                               
people within a government unit.                                                                                                
                                                                                                                                
10:19:13 AM                                                                                                                   
                                                                                                                                
MR. COGHILL directed  attention to Section 12, Article  10 of the                                                               
Alaska State  Constitution, which  says the commission  or boards                                                               
subject to  law may establish  procedures whereby  boundaries may                                                               
be adjusted by  local action.  He stated, "It's  the local action                                                               
that  refers  back  to  Article  1  of  the  constitution,  which                                                               
establishes under  Section 2  that all  government is  created by                                                               
the people,  and by the  people solely."   He explained  that, on                                                               
that basis,  he has lobbied  for many years with  the legislature                                                               
and  now with  his son  [Representative John  Coghill] to  ensure                                                               
that   this  provision   gets   established   within  the   state                                                               
government's procedure to  allow the people that are  going to be                                                               
annexed to have the vote.                                                                                                       
                                                                                                                                
10:20:15 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  ELKINS thanked  Lieutenant Governor  Jack Coghill                                                               
for testifying,  and congratulated him  on his upcoming  award as                                                               
"Man of the Year."                                                                                                              
                                                                                                                                
10:20:47 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON  expressed his  appreciation of  Lieutenant Governor                                                               
Jack Coghill's past service.                                                                                                    
                                                                                                                                
10:20:59 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE GRUENBERG noted that  the copy of the constitution                                                               
that he carries  around with him has one autograph  on the front.                                                               
He added, "And I'm going to  not have to tell you whose autograph                                                               
that was."                                                                                                                      
                                                                                                                                
10:21:49 AM                                                                                                                   
                                                                                                                                
MR. COGHILL  responded, "Time  tells that  this document  that we                                                               
have is a  good document; it's a breathing document  and it lives                                                               
everyday."   He noted that  there are only five  [participants in                                                               
the  Alaska Constitutional  Convention]  still  living, and  2005                                                               
marks the convention's 50th anniversary.                                                                                        
                                                                                                                                
CHAIR SEATON asked Lieutenant Governor  Jack Coghill if Section 1                                                               
of  HB   133  would  have   been  acceptable  to  those   in  the                                                               
constitutional convention.                                                                                                      
                                                                                                                                
MR. COGHILL answered affirmatively.                                                                                             
                                                                                                                                
10:24:03                                                                                                                      
                                                                                                                                
PETE  ROBERTS, President,  Citizens  Concerned About  Annexation,                                                               
told  the committee  that  he was  "intensely  involved with  the                                                               
hostile  annexation in  Homer."   Regarding  HB 133,  he said  he                                                               
thinks the  bill is  a very good  change; it goes  a long  way to                                                               
take  out  the  anti-constitutional  bias by  the  LBC  that  has                                                               
existed  for   years.    Mr.   Roberts  said,  "They   cram  down                                                               
annexations in surrounding  areas to cities, they  claim that the                                                               
state  constitution  has  a  preference for  cities  and  a  bias                                                               
against service  areas, and they  are talking apples  and oranges                                                               
here."   He  indicated that  the  LBC was  talking about  utility                                                               
districts  before there  were municipalities  in Alaska,  and the                                                               
service areas the  LBC talks about today have nothing  to do with                                                               
those old utility  districts; they're merely an  area function of                                                               
the boroughs.                                                                                                                   
                                                                                                                                
MR. ROBERTS  concurred with Mr.  Coghill.  He said,  "The problem                                                               
here is  that small groups  of people  with vested interests  - a                                                               
city  administration  or  a  city  council  -  can  hijack  their                                                               
neighbors, and the LBC lets them  choose the method in which they                                                               
do it.   And the only last  resort is if those  people can garner                                                               
enough  support  in  the  legislature  to  have  it  voted  down;                                                               
otherwise,  the annexation  rides through."   He  said Homer  was                                                               
hijacked.  He continued as follows:                                                                                             
                                                                                                                                
     We  effected the  process greatly  with our  fight with                                                                    
     the  LBC.    We're  still  in court;  we  won  one  ...                                                                    
     [Alaska] Supreme  Court case and we're  probably headed                                                                    
     for another  ....  So,  in a  general sense, I  have to                                                                    
     say that I think that this  bill should be passed.  The                                                                    
     LBC  should not  get  to operate  as  the commissar  of                                                                    
     boundaries in  Alaska.   The idea  that, in  general, a                                                                    
     city and  a small  area surrounding  it could  have one                                                                    
     vote,  even, is  likely  to hijack  the  people in  the                                                                    
     surrounding area.                                                                                                          
                                                                                                                                
     In the case  of the Homer annexation:  if  the city had                                                                    
     been willing to  put it to a vote of  the people in the                                                                    
     city -- it became such  a divisive issue here, it would                                                                    
     have been  voted down, and  they didn't dare let  it go                                                                    
     to a vote.                                                                                                                 
                                                                                                                                
10:27:40 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  GRUENBERG   asked  Ms.  Moss  for   her  opinions                                                               
regarding the constitutionality of the bill.                                                                                    
                                                                                                                                
10:28:12 AM                                                                                                                   
                                                                                                                                
MS. MOSS  said there  have been differences  of opinion  over the                                                               
intent of the Constitutional Convention;  it's a gray area.  That                                                               
is why, she  explained, Representative John Coghill  was asked to                                                               
testify.   She  said  she  would provide  those  opinions to  the                                                               
committee.   In response  to an observation  that the  bill would                                                               
not be heard by the  House Judiciary Standing Committee, she said                                                               
she thought  it should  be, because of  the amount  of contention                                                               
and disagreement.                                                                                                               
                                                                                                                                
10:28:58 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE GRUENBERG  stated, "I  have no problem  in passing                                                               
the  bill out,  but I  will make  a motion  that we,  in writing,                                                               
request that  this be referred  to [the House  Judiciary Standing                                                               
Committee]."                                                                                                                    
                                                                                                                                
CHAIR SEATON  asked if  the sponsor would  have any  objection to                                                               
that.                                                                                                                           
                                                                                                                                
MS. MOSS interjected, "I think it would help the whole case."                                                                   
                                                                                                                                
10:29:29 AM                                                                                                                   
                                                                                                                                
ROBERT  KALLIO,  testifying on  behalf  of  himself, referred  to                                                               
Article 1,  Section 2,  of the  Alaska State  Constitution, which                                                               
read as follows:                                                                                                                
                                                                                                                                
     SECTION 2.  Source of Government.                                                                                          
                                                                                                                                
     All political  power is  inherent in  the people.   All                                                                    
     government originates with the  people, is founded upon                                                                    
     their will only, and is  instituted solely for the good                                                                    
     of the people as a whole.                                                                                                  
                                                                                                                                
MR. KALLIO  stated that it is  clear that the founders  of Alaska                                                               
did not  intend that  a borough could  annex additional  areas or                                                               
"be   created   by   a   state   employee   or   five   unelected                                                               
commissioners."   He  urged  the  committee to  pass  HB 133,  to                                                               
protect the  rights of residents in  unincorporated areas against                                                               
being  annexed into  any borough  against  their will.   He  said                                                               
Lieutenant  Governor Coghill  stated this  sentiment much  better                                                               
than  he  ever  could;  he   was  there  at  the  convention  and                                                               
understood  the  intent.     He  stated  his   belief  that  [the                                                               
legislature]  is  bound  to,  and thus  must  follow,  the  state                                                               
constitution.                                                                                                                   
                                                                                                                                
10:31:24 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE GRUENBERG said he concurs  with Mr. Kallio and the                                                               
intent of the bill.                                                                                                             
                                                                                                                                
10:31:36 AM                                                                                                                   
                                                                                                                                
CAM  CARLSON testified  on behalf  of  herself.   She stated  the                                                               
following:                                                                                                                      
                                                                                                                                
     I am  definitely not in  favor of annexations  that are                                                                    
     proposed where we're going to  take in large quantities                                                                    
     of  the state,  not because  we can  provide them  with                                                                    
     anything, but  just because we can  pick their pockets.                                                                    
     It comes  off to me as  totally immoral.  The  moment I                                                                    
     heard  that  this  was  even   being  proposed  by  the                                                                    
     Fairbanks  North   Star  Borough  Mayor,  I   was  just                                                                    
     absolutely appalled.                                                                                                       
                                                                                                                                
     I agree with all the  previous speakers that the people                                                                    
     should  be  able  to  vote on  their  future  and  what                                                                    
     happens to  them, [and] that people  that are employees                                                                    
     of  government  and  not elected  by  the  people  have                                                                    
     frequently in the  past and are still  going way beyond                                                                    
     what they are supposed to be doing to us and for us.                                                                       
                                                                                                                                
     So, I'm very much in favor  of this being a vote of the                                                                    
     people  that  reside  in  the  areas  before  they  get                                                                    
     annexed to anything,  and I am very opposed  to what is                                                                    
     happening currently  and being proposed by  some of our                                                                    
     officials, statewide.   And I am very much  in favor of                                                                    
     HB 133, and also the amendments  to it.  I think it's a                                                                    
     good idea to  have a vote of both areas  - the existing                                                                    
     area  and that  proposed to  be annexed  - and  that if                                                                    
     both don't pass it, it doesn't happen.                                                                                     
                                                                                                                                
10:34:01 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE GRUENBERG  offered a possible scenario  in which a                                                               
municipality wants to  annex a large area that  is only populated                                                               
by five people.   He asked if those five people  would be able to                                                               
"scotch the whole thing."                                                                                                       
                                                                                                                                
10:34:41 AM                                                                                                                   
                                                                                                                                
MS. MOSS answered yes.                                                                                                          
                                                                                                                                
10:34:45 AM                                                                                                                   
                                                                                                                                
GARY PETERSON  testified on  behalf of himself  in support  of HB
133.    He  stated  that   he  would  like  two  points  outlined                                                               
specifically:   The first is  that the people living  in proposed                                                               
annexed areas should  have the exclusive right  to decide whether                                                               
or not  they want annexation.   The second is that  the people in                                                               
the  city  limits who  are  proposing  annexation should  not  be                                                               
allowed the aggregate vote to  impose annexation in areas outside                                                               
their city limits.  He stated,  "I believe that 'annexation' is a                                                               
dirty word."  He indicated that  the rights of people who come to                                                               
Alaska to enjoy  their freedom, the wilderness,  and the wildlife                                                               
have  eroded.   Annexation  imposes  rules  and regulations  and,                                                               
additionally, heavy  taxation.  He  said he would like  the staff                                                               
of the local boundary commission  fired and the governor to close                                                               
it down.                                                                                                                        
                                                                                                                                
10:37:35 AM                                                                                                                   
                                                                                                                                
VI JERREL,  Ph.D., testified  on behalf  of herself  and Alaskans                                                               
Opposed to  Annexation.  She stated  support of having a  vote by                                                               
the  people  in the  area  proposed  to  be annexed,  but  voiced                                                               
opposition to  having a vote  by the people  in the city  or area                                                               
that files the  annexation petition.  She  also stated opposition                                                               
to  aggregate votes,  and  to  giving the  LBC  the authority  to                                                               
"amend  a change  or  change  a petition."    Dr. Jerrel  stated,                                                               
"Public funds  cannot be  used to  deny a  person due  process of                                                               
law.    Rights guaranteed  by  the  state and  U.S.  Constitution                                                               
guarantee that a  person cannot be deprived of  life, liberty, or                                                               
property without  due process of  law."  She stated  objection to                                                               
the State  of Alaska's using  public funds  for misrepresentation                                                               
and wrongful procedures by the current LBC.                                                                                     
                                                                                                                                
DR. JERREL said  she and Doris Cabana formed  Alaskans Opposed to                                                               
Annexation and  hired Robert C.  Erwin - a former  Alaska Supreme                                                               
Court Justice - to represent them  in the "wrongful and illegal -                                                               
in our opinion - Homer annexation."                                                                                             
                                                                                                                                
10:41:24 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON asked Dr. Jerrel to focus specifically on HB 133.                                                                  
                                                                                                                                
10:41:46 AM                                                                                                                   
                                                                                                                                
DR. JERREL  posited that the  subject before the committee  is in                                                               
regard to  authority of a  local boundary commission, and  she is                                                               
talking about  authority and lack of  authority by the LBC.   She                                                               
reported that [the LBC] did not  get the 26 square miles it asked                                                               
for  [in  Homer]  because  "we  fought for  it."    The  case  is                                                               
currently  in  the Alaska  Superior  Court.    In response  to  a                                                               
request for clarification from Chair  Seaton, she reiterated that                                                               
she supports  HB 133, but  not the  amendment that would  allow a                                                               
dual vote.                                                                                                                      
                                                                                                                                
CHAIR  SEATON clarified  that the  amendment would  not allow  an                                                               
aggregate vote; it would be two separate votes.                                                                                 
                                                                                                                                
DR. JERREL  indicated that she had  been advised by Mr.  Erwin to                                                               
say, "We want a  vote only of the people in  the area proposed to                                                               
be annexed," not an aggregate vote.                                                                                             
                                                                                                                                
10:43:03 AM                                                                                                                   
                                                                                                                                
DR. JERREL, in  response to a question  from Representative Lynn,                                                               
revealed  that  her Ph.D.  is  in  administrative leadership  and                                                               
human behavior.  She offered further personal history.                                                                          
                                                                                                                                
10:43:45 AM                                                                                                                   
                                                                                                                                
ALAN LeMASTER,  testifying on behalf  of himself, stated  that he                                                               
is impressed  with the testimony  heard thus far and  the support                                                               
of  the bill  and its  amendment.   He  offered his  recollection                                                               
that,  during a  hearing of  HB 133  in the  House Community  and                                                               
Regional Affairs  Standing Committee, Commissioner Hicks  said he                                                               
felt  that the  bill  was "objectively  unconstitutional" and  he                                                               
didn't know of  any attorneys in the state  who could effectively                                                               
defend it.   Mr.  LeMaster said he  is especially  cautious about                                                               
the constitutionality of  the bill and is happy to  hear that the                                                               
committee will  be referring it  to the House  Judiciary Standing                                                               
Committee.                                                                                                                      
                                                                                                                                
10:44:58 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE GRUENBERG said he would  like the citation for the                                                               
recent Homer case.                                                                                                              
                                                                                                                                
10:45:19 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON closed public testimony.                                                                                           
                                                                                                                                
10:45:34 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE GARDNER said she had  not been, until today, aware                                                               
of  the pending  issue  regarding annexation  and Homer,  Alaska.                                                               
She asked if  there are other pending cases that  she is aware of                                                               
across the state.                                                                                                               
                                                                                                                                
10:45:54 AM                                                                                                                   
                                                                                                                                
MS.  MOSS  answered  that  there is  a  related  issue  regarding                                                               
Whittier and Valdez.  She added  that Delta [Junction] is "in the                                                               
process  of  petitioning for  a  borough  to have  an  election."                                                               
Additionally, she noted that the  Fairbanks North Star Borough is                                                               
looking at  annexing everything  to the south  bank of  the Yukon                                                               
River, including Pogo Mine, which is  part of the land that Delta                                                               
is petitioning  to annex.  She  said, "The big concern  with that                                                               
whole situation is  the fact that the borough  mayor ... publicly                                                               
said that he  intended to use an aggregate vote  that was created                                                               
by  regulation that  is, without  a  question, inconsistent  with                                                               
state law."                                                                                                                     
                                                                                                                                
10:47:09 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE GRUENBERG requested that  any other court opinions                                                               
be sent to him.                                                                                                                 
                                                                                                                                
10:47:33 AM                                                                                                                   
                                                                                                                                
MS. MOSS  agreed to  research to  find any  past decisions.   She                                                               
said:                                                                                                                           
                                                                                                                                
     We have been pressing this  bill on the issue of equity                                                                    
     and  constitutional intent.   Because  the constitution                                                                    
     is quite clear that the people  are the power.  And the                                                                    
     Local  Boundary  Commission  on several  occasions  has                                                                    
     stated   that   the   constitution   has   given   them                                                                    
     independent  authority   to  create   law.     And  the                                                                    
     constitution is  quite clear  that the  term -  and I'm                                                                    
     looking at  Article 12,  Subsection 11  - the  term "by                                                                    
     law" and "by legislature" are interchangeable.  So law                                                                     
     is what the legislature enacts.                                                                                            
                                                                                                                                
Ms.  Moss,   in  response  to  a   question  from  Representative                                                               
Gruenberg, she said Article 12 is about general provisions.                                                                     
                                                                                                                                
10:49:10 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE GRUENBERG read that subsection.                                                                                  
                                                                                                                                
10:49:27 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE ELKINS moved to report  CSHB 133(CRA), as amended,                                                               
out  of   committee  with  individual  recommendations   and  the                                                               
accompanying fiscal notes.                                                                                                      
                                                                                                                                
CHAIR  SEATON objected  to note  that the  committee had  not yet                                                               
proposed or adopted Amendment 1.                                                                                                
                                                                                                                                
10:50:12 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE ELKINS, as a point of order, withdrew his motion.                                                                
                                                                                                                                
10:50:21 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  LYNN moved  to adopt  Amendment 1  [text provided                                                               
previously].                                                                                                                    
                                                                                                                                
10:51:14 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE GRUENBERG objected for discussion purposes.                                                                      
                                                                                                                                
MS.  MOSS,   in  response  to  a   question  from  Representative                                                               
Gruenberg, affirmed that the sponsor approves of Amendment 1.                                                                   
                                                                                                                                
REPRESENTATIVE GRUENBERG  stated for  the record, "We'll  look at                                                               
this  with  the  rest  of   bill  in  [House  Judiciary  Standing                                                               
Committee]."  He removed his objection to Amendment 1.                                                                          
                                                                                                                                
10:51:32 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON  announced that, there  being no  further objection,                                                               
Amendment 1 was adopted.                                                                                                        
                                                                                                                                
10:51:40 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE ELKINS moved to report  CSHB 133(CRA), as amended,                                                               
out  of   committee  with  individual  recommendations   and  the                                                               
accompanying fiscal notes.                                                                                                      
                                                                                                                                
10:52:31 AM                                                                                                                   
                                                                                                                                
CHAIR  SEATON  reminded the  committee  that  the bill  has  been                                                               
assigned an  additional referral to the  House Judiciary Standing                                                               
Committee, and that referral has been agreed to by the sponsor.                                                                 
                                                                                                                                
10:52:33 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  ELKINS revealed  that  he came  into the  meeting                                                               
today agreeing with  the chair of the  Local Boundary Commission,                                                               
but after the testimony of everyone, he changed his position.                                                                   
                                                                                                                                
10:53:13 AM                                                                                                                   
                                                                                                                                
CHAIR  SEATON  announced  that there  being  no  objection,  CSHB
133(STA) was  reported out  of the  House State  Affairs Standing                                                               
Committee.                                                                                                                      
                                                                                                                                
10:53:22 AM                                                                                                                   
                                                                                                                                
MS.  MOSS thanked  the  committee,  in particular  Representative                                                               
Gruenberg for his  efforts to allow the bill the  scrutiny of the                                                               
House Judiciary Standing Committee.                                                                                             
                                                                                                                                
The committee took an at-ease from 10:54:00 AM to 10:59:55 AM.                                                              
                                                                                                                                
10:59:58 AM                                                                                                                   
                                                                                                                                
HB 238-PUBLIC EMPLOYEE/TEACHER RETIREMENT                                                                                     
                                                                                                                                
11:00:05 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON announced that the  next order of business was HOUSE                                                               
BILL  NO.  238,  "An  Act  relating  to  contribution  rates  for                                                               
employers  and  members  in  the defined  benefit  plans  of  the                                                               
teachers' retirement system and  the public employees' retirement                                                               
system and  to the ad-hoc  post-retirement pension  adjustment in                                                               
the  teachers'  retirement   system;  requiring  insurance  plans                                                               
provided  to  members of  the  teachers'  retirement system,  the                                                               
judicial  retirement  system,  the public  employees'  retirement                                                               
system,  and  the  former  elected  public  officials  retirement                                                               
system to provide a list  of preferred drugs; relating to defined                                                               
contribution  plans  for  members  of  the  teachers'  retirement                                                               
system  and   the  public   employees'  retirement   system;  and                                                               
providing for an effective date."                                                                                               
                                                                                                                                
                                                                                                                                
CHAIR  SEATON noted  that there  is a  sectional analysis  in the                                                               
committee packet.  He opened public testimony.                                                                                  
                                                                                                                                
11:00:45 AM                                                                                                                   
                                                                                                                                
BILL  BJORK, President,  NEA-Alaska,  said  he represents  12,500                                                               
employees in Alaska.  He  highlighted key points from his written                                                               
testimony  [included  in the  committee  packet].   He  said  the                                                               
purpose  of the  retirement  system is  stated  in AS  14.25.012,                                                               
which read as follows:                                                                                                          
                                                                                                                                
          (a) The purpose of this chapter is to encourage                                                                       
     qualified teachers to enter and  remain in service with                                                                    
     participating  employers by  establishing a  system for                                                                    
     the  payment  of   retirement,  disability,  and  death                                                                    
     benefits to or on behalf of the members.                                                                                   
                                                                                                                                
MR. BJORK read from his written testimony as follows:                                                                           
                                                                                                                                
     Although  there is  some  anecdotal  evidence that  the                                                                    
     retirement benefits  can be  used for  recruitment, its                                                                    
     main  attraction is  a  tool  for retaining  educators.                                                                    
     Job   satisfaction,    competitive   compensation   and                                                                    
     retirement benefits  are the three major  reasons for a                                                                    
     person to remain in education.                                                                                             
                                                                                                                                
11:02:34 AM                                                                                                                   
                                                                                                                                
MR. BJORK  said currently the  average number of years  a teacher                                                               
serves  before retiring  is 27.   He  addressed some  of the  key                                                               
assumptions  made going  into deliberations  over changes  in the                                                               
retirement system.   He stated  assumption 1:  "An  educator with                                                               
27  years of  service  ought  to be  able  to  receive an  annual                                                               
annuity of at  least 55 percent of their salary  at retirement to                                                               
be  able to  retire with  dignity."   He noted  that he  provided                                                               
information  regarding the  average  [teacher]  salary and  "what                                                               
that represents as  a percentage."  He said HB  238 would require                                                               
teachers to  work at least  30 years [before retiring],  which is                                                               
three more years than the current average.                                                                                      
                                                                                                                                
MR.  BJORK  said assumption  2  is  in  regard  to the  level  of                                                               
investment  return.   He stated,  "We agree  with the  assumption                                                               
currently in  the retirement  systems of  8.25 percent;  ... it's                                                               
consistent with permanent fund assumptions,  as well."  He stated                                                               
assumption 3:   "The  combined contribution  of the  employee and                                                               
the  employer to  the  pension must  be at  least  20 percent  of                                                               
salary ...."   He said  assumption 4  is in regard  to inflation.                                                               
The present  actuarial assumption  is 3.5  percent annually.   He                                                               
said that is not consistent  with permanent fund assumptions.  He                                                               
asked, "Given  that inflation has  been 2.6 percent over  any 10-                                                               
year  period  in  Alaska,  why  would  we  adopt  a  3.5  percent                                                               
inflation rate?"   That half a percent over 25  years would add a                                                               
huge amount  of money to the  past service cost.   He stated that                                                               
assumptions are  critical in determining  the necessity of  a new                                                               
and improved  retirement system and  making the wrong  ones today                                                               
will  only  lead  to  retirees having  no  dignity  and  becoming                                                               
dependent on the State of Alaska  for Welfare.  He said, "We must                                                               
take time to  reach agreement on the actuarial  assumptions to be                                                               
used."                                                                                                                          
                                                                                                                                
11:05:10 AM                                                                                                                   
                                                                                                                                
MR. BJORK  stated his  belief that there  is agreement  that "the                                                               
actuarial assumptions  made in the  past have brought us  to this                                                               
point, particularly in  the area of health care."   He noted that                                                               
the delayed  used of [updated]  mortality rates and  the addition                                                               
of  benefits in  the retirement  system, without  a corresponding                                                               
increase  in  contributions,  are  major factors.    Two  of  the                                                               
factors can be  corrected without the adoption of a  new tier for                                                               
TRS and PERS.   He stated that the legislature  could mandate the                                                               
use  of the  most  recent  mortality tables,  and  it could  also                                                               
require an  actuarial evaluation of any  proposed benefit changes                                                               
and  require an  increased  contribution "to  cover past  service                                                               
cost at the time of passage."  He offered an example.                                                                           
                                                                                                                                
11:06:28 AM                                                                                                                   
                                                                                                                                
MR. BJORK stated that NEA-Alaska  believes that health care costs                                                               
can be managed  to provide a more predictable rate  increase.  He                                                               
stated,  "It   seems  that  the   health  cost   trend  actuarial                                                               
assumptions  provided  to  the   administration  June  30,  2002,                                                               
absolutely  defied  common   sense  or  logic."     He  said  the                                                               
projections  provided,  as  printed in  the  retirement  booklet,                                                               
showed  increases in  health care  of:   7.5 percent  for [Fiscal                                                               
Year 2001  (FY 01)], 6.5  percent for FY  02, 5.5 percent  for FY                                                               
03,  5 percent  for  FY  04-08, and  declining  after  that.   He                                                               
stated, "Anyone  using health care  services could tell  you that                                                               
those rate projections  were not based in reality."   He said the                                                               
next year the  assumptions were changed to show:   12 percent for                                                               
FY  04,  12 percent  for  FY  05, 11.5  percent  for  FY 06,  and                                                               
declining until the  increases would only be 5 percent  in FY 17.                                                               
He questioned how such a drastic  change could occur in one year.                                                               
He queried,  "These numbers,  when graphed,  would make  a pretty                                                               
downhill slope, but  are they based in reality?"   He stated that                                                               
this kind of dramatic change  does not inspire credibility in the                                                               
actuary.  He  asked, "Is this the kind of  assumption that the $5                                                               
billion unfunded liability is based upon?"                                                                                      
                                                                                                                                
11:07:48 AM                                                                                                                   
                                                                                                                                
MR. BJORK  said NEA-Alaska appreciates  the efforts  made through                                                               
HB 238 to provide important access  to health care and payment of                                                               
premiums for  retirees.   He said once  everyone agrees  on which                                                               
health care inflation  assumption to use, it will  be possible to                                                               
"evaluate the  proposal and its  impact on retirees'  standard of                                                               
living."   Mr. Bjork stated  for the  record that a  teacher that                                                               
begins a  career at  age 22  and works nonstop  for 30  years, as                                                               
outlined in HB 238, will be eligible  to retire at age 52.  Since                                                               
the teacher must retire directly  out of the system, he/she would                                                               
have to teach  for 38 years to  reach age 60, or  pay for his/her                                                               
health  care  for  8  years,   which  would  erode  the  pensions                                                               
annuities significantly.                                                                                                        
                                                                                                                                
MR. BJORK  said NEA-Alaska  believes that  several things  can be                                                               
done to  provide a  new and improved  retirement system  for both                                                               
teachers and public employees and  "stands ready to work with the                                                               
[House  State  Affairs  Standing]   Committee  to  determine  the                                                               
appropriate  actuarial assumptions  upon which  a new  retirement                                                               
system could  be built that  meets the purpose of  recruiting and                                                               
retaining qualified educators and public employees."                                                                            
                                                                                                                                
11:09:29 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON expressed appreciation for  the focus of Mr. Bjork's                                                               
testimony, which he said parallels the committee's own focus.                                                                   
                                                                                                                                
11:09:33 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE LYNN asked how the  legislature would use more up-                                                               
to-date mortality  tables when  they only  are produced  every 10                                                               
years.                                                                                                                          
                                                                                                                                
11:10:15 AM                                                                                                                   
                                                                                                                                
MR.  BJORK said  Representative Lynn  raises an  excellent point.                                                               
He continued as follows:                                                                                                        
                                                                                                                                
     We just  believe that  we ought  to implement  the most                                                                    
     recent actuarial  table ...  available.   The mortality                                                                    
     table, as you  correctly point out, is a  key driver of                                                                    
     cost.  If  we change from one mortality table  to a new                                                                    
     mortality table and it  shows increased longevity, then                                                                    
     the actuarial  assumptions trigger a huge  past service                                                                    
     increase.   So,  you're absolutely  right.   When these                                                                    
     are published, though, we ought to be using them.                                                                          
                                                                                                                                
     But  the  actuarial  assumption that  is  a  particular                                                                    
     problem ... is the  increase in medical coverage costs.                                                                    
     Those projections  ... were just simply  not real world                                                                    
     based.    To say  that,  at  some  point in  the  magic                                                                    
     future, medical cost increases would  only be 4 percent                                                                    
     just simply  isn't ... reflecting  the kind  of reality                                                                    
     that  all  of  us   experience  when  we  need  medical                                                                    
     coverage.                                                                                                                  
                                                                                                                                
11:11:36 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE LYNN asked if the health cost is "a bigger driver                                                                
of the problem" than the actuarial tables.                                                                                      
                                                                                                                                
11:11:51 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON explained  that the two systems are  different.  The                                                               
"health  cost"  is the  largest  driver  in TRS,  accounting  for                                                               
approximately 40 percent  of the unfunded past  service cost, but                                                               
it's much  less in PERS.   He said the two  systems contribute at                                                               
different  rates and  the  age  at which  a  person qualifies  is                                                               
different.                                                                                                                      
                                                                                                                                
11:12:58 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON asked:                                                                                                             
                                                                                                                                
     Do  you have  an  analysis  at all  on  how much  those                                                                    
     [RIPs]  lowered the  retirement  age, and  how much  of                                                                    
     that 3-year gap between the  30 that [HB] 238 calls for                                                                    
     and  the 27  which is  your average  coming out  of the                                                                    
     system  -  how much  of  that  do  you think  would  be                                                                    
     accounted  for  by  the   different  [RIPs]  that  went                                                                    
     forward?                                                                                                                   
                                                                                                                                
11:14:01 AM                                                                                                                   
                                                                                                                                
MR. BJORK noted that both state  and local RIPs were offered.  He                                                               
said it's  difficult to answer  Chair Seaton's  question, because                                                               
only a small number of the  total retirees actually got access to                                                               
those RIPs;  therefore, it's hard  to "spread that  number across                                                               
the  retired population  to  give  you a  straight  up answer  on                                                               
that."   He noted that about  27 years of active  service is that                                                               
average  for   "those  retirees,"  not  factoring   in  the  RIP,                                                               
whatsoever.                                                                                                                     
                                                                                                                                
11:15:08 AM                                                                                                                   
                                                                                                                                
CHAIR  SEATON returned  to assumption  3, which  Mr. Bjork  noted                                                               
would  require that  the contribution  must  be 20  percent.   He                                                               
noted that the  current version of HB 238 would  require that the                                                               
contribution  be 22  percent.   He asked,  "Does that  fit within                                                               
your range  of expectation  for a plan  that would  provide those                                                               
equality of benefits?"                                                                                                          
                                                                                                                                
11:15:47 AM                                                                                                                   
                                                                                                                                
MR. BJORK stated, "It's our  experience that 20 percent of salary                                                               
needs to  go towards the pension."   Regarding the 22  percent in                                                               
HB 238, he noted that "a  chunk of that goes toward major medical                                                               
coverage  and also  the  health  reimbursement rate";  therefore,                                                               
"those percentages are not going  directly into the pension."  He                                                               
stated his  experience with [NEA-Alaska's] own  employees is that                                                               
is  takes  about  20  percent  of  salary  into  the  pension  to                                                               
accomplish retirement with dignity.                                                                                             
                                                                                                                                
11:16:24 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON  offered some statistics and  explained, "I'm trying                                                               
to  figure out  where the  20  percent into  the retirement  plus                                                               
medical comes from if that hasn't  been the history in any of the                                                               
last 20 years in the current program."                                                                                          
                                                                                                                                
11:17:37 AM                                                                                                                   
                                                                                                                                
MR. BJORK  responded that he  agrees with the numbers  that Chair                                                               
Seaton put forward.  Notwithstanding  that, he said, "That is our                                                               
experience that  it takes  20 percent of  salary to  accomplish a                                                               
defined ... contribution  program that would allow  an annuity of                                                               
sufficient  size to  last a  person  throughout their  retirement                                                               
years."                                                                                                                         
                                                                                                                                
11:18:03 AM                                                                                                                   
                                                                                                                                
CHAIR  SEATON  said he  appreciates  knowing  that Mr.  Bjork  is                                                               
talking  about  "the  amount  that would  be  necessary  under  a                                                               
defined  contribution  [plan]."    He   asked  if  Mr.  Bjork  is                                                               
factoring  in  an  8.25  percent   rate  or  a  lower  percentage                                                               
investment  rate based  on the  history  of defined  contribution                                                               
programs, such as 401K, versus a defined benefit program.                                                                       
                                                                                                                                
11:18:30 AM                                                                                                                   
                                                                                                                                
MR. BJORK said he is factoring in an 8.25 percent [rate].                                                                       
                                                                                                                                
11:18:39 AM                                                                                                                   
                                                                                                                                
WILLY  DUNNE,  President,  Kachemak  Bay  Chapter,  Alaska  State                                                               
Employees'  Association (ASEA),  which includes  approximately 60                                                               
state employee members,  noted that he sent  in written testimony                                                               
[included in the  committee packet].  He stated  that the members                                                               
of the chapter are concerned  about any increase to their current                                                               
contribution.  They  have not seen a pay increase  in a couple of                                                               
years and are due for a small  one this year, which would be lost                                                               
if there was any increase in the contribution rate.                                                                             
                                                                                                                                
MR.  DUNNE  said most  of  the  employees  are doing  their  jobs                                                               
because they like  doing them; they could make more  money in the                                                               
private sector or  working with the federal  government, and many                                                               
employees are lost  to both.  He stated  that retirement benefits                                                               
are one  of the  factors that  keeps state  employees going.   He                                                               
asked the committee to carefully  evaluate any changes to current                                                               
employees'  benefits, and  he cautioned  the  committee to  think                                                               
carefully  before structuring  a new  tier.   He said  the latter                                                               
could   negatively   impact   recruitment.      He   stated   his                                                               
understanding that "there's  a big, $5 billion  problem out there                                                               
that has to be dealt with."                                                                                                     
                                                                                                                                
MR. DUNNE  said he read a  study that shows that  state employees                                                               
have lost  approximately 30 percent  buying power in  their wages                                                               
over the past 25 years.   He predicted that any further reduction                                                               
would  cause  employees to  "think  about  jumping ship  and  not                                                               
sticking it  out."  He  expressed appreciation for the  work that                                                               
Chair  Seaton  and  his  staff   have  put  into  [HB  238],  but                                                               
reiterated that  he would like  the committee to  think carefully                                                               
about [what  may] harm employees  "any more than we  already have                                                               
been."                                                                                                                          
                                                                                                                                
11:23:13 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON  said one  segment of  the retirement  program being                                                               
considered would be switching to  a defined contribution program.                                                               
No  element  of  that  program would  change  [the  benefits  of]                                                               
existing  employees, unless  they were  not vested  and opted  to                                                               
change from  the current Tier III  defined benefit to a  new Tier                                                               
IV defined contribution plan.                                                                                                   
                                                                                                                                
11:24:10 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  GARDNER asked  for verification  that going  to a                                                               
defined contribution plan with a new  tier level would not in any                                                               
way affect the shortfall; it would only deal with the future.                                                                   
                                                                                                                                
11:24:27 AM                                                                                                                   
                                                                                                                                
CHAIR  SEATON answered  that's correct.   As  a point  of general                                                               
information, he reviewed that the  past service cost is generated                                                               
by looking  at the  projected payments  of state,  municipal, and                                                               
school   employers   and   figuring  out   what   the   projected                                                               
expenditures are going  to be, amortized over the  next 25 years.                                                               
He  explained  that  the  benefits  expected  to  be  accrued  by                                                               
employees are  looked at to determine  their cost.  Based  on the                                                               
amount  of  money in  the  bank,  the  percentage of  the  future                                                               
benefits  that  will be  covered  can  be  predicted at  an  8.25                                                               
percent growth  rate.  The  payments that  would have to  be made                                                               
over the next 25 years add up to $15.6 billion.                                                                                 
                                                                                                                                
CHAIR  SEATON  noted  that  there are  charts  [included  in  the                                                               
committee packet]  that show that.   He indicated that  it's only                                                               
the present  dollar value  that is $15.6  billion.   He explained                                                               
that  "if   you  take  those   costs  and  back   ...  calculate,                                                               
subtracting 8.25  percent interest  per year,"  the result  is an                                                               
unfunded liability  of $5 billion  in 2003 present  dollar value.                                                               
He said the assumption is that if  the $5 billion in 2003 was put                                                               
in the bank and earned 8.25  [percent], that amount would grow to                                                               
[meet the  future payments of  expected benefits].   That deposit                                                               
was  not made  in  2003; therefore,  the  2004 numbers  basically                                                               
escalated by  8.25 percent and,  because there was one  less year                                                               
to grow that amount, the unfunded liability is now $5.6 billion.                                                                
                                                                                                                                
CHAIR  SEATON stated  that $5.6  billion is  "the present  dollar                                                               
cost that  we would need  to have  invested at 8.25  [percent] to                                                               
cover the projected liabilities of  $15.6 billion."  Chair Seaton                                                               
indicated that  if nothing  is done this  year, the  $5.6 billion                                                               
will grow  by 8.25 percent,  resulting in an even  larger present                                                               
dollar value unfunded liability next  year.  The $15.6 billion of                                                               
projected  payments are  still the  same, but  there won't  be as                                                               
many years  to invest an initial  sum of money now  that can grow                                                               
to cover the shortfall.                                                                                                         
                                                                                                                                
11:27:09 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON said one option would  be to spend $5.6 billion from                                                               
the  general fund  this year  and let  it grow  at 8.25  percent,                                                               
which would  cover every  bit of the  past service  cost, without                                                               
having to  have an increase  in employer contribution rates.   He                                                               
described another option as  increasing the employer contribution                                                               
rates.   A third  way, he  proffered, would  be a  combination of                                                               
paying  off some  of the  unfunded liability  and increasing  the                                                               
employer rate or having a matching employer/employee rate.                                                                      
                                                                                                                                
CHAIR  SEATON said  the calculations  [presented by  Mercer Human                                                               
Resource Consulting  - "Mercer"]  are all  based on  the employer                                                               
rates [escalating to  as much as] 44 percent of  the total salary                                                               
of all the  school districts.  Because the  calculations are made                                                               
on the total [population] base growing  at 1 percent a year, even                                                               
if  a defined  contribution plan  is instituted  and there  is no                                                               
actual  past  service cost  associated  with   [those  individual                                                               
employees] under that  plan, the employer is still  going to have                                                               
to  pay the  same amount  of money  into the  system because  the                                                               
calculations of [the  past service cost] rates  [from Mercer] are                                                               
based on the  total salary of the employer.   Chair Seaton stated                                                               
that  it gets  confusing.   He  indicated that  there  is a  past                                                               
service  cost liability  to the  employer even  though a  defined                                                               
contribution  program would  mean that  each individual  employee                                                               
does not  have a past  service cost associated with  him/her, and                                                               
the employer would be responsible for that liability.                                                                           
                                                                                                                                
11:29:29 AM                                                                                                                   
                                                                                                                                
CHAIR  SEATON  explained  that  if  the  wage  base  of  the  new                                                               
employees under  the defined contribution  plan is  not included,                                                               
then  as soon  as  there are  an equal  number  of new  employees                                                               
[under the  defined contribution  plan] and old  employees [under                                                               
the defined  benefit plan],  the contribution  rate -  instead of                                                               
being at 44 percent - would be  at 88 percent and would result in                                                               
[the same  dollar rate distributed  among] fewer employees.   The                                                               
actuaries, he explained, have tried  to calculate a [past service                                                               
cost] rate  that is reasonably  fixed over time -  amortized over                                                               
time -  to give  a stable  percentage, and they  have to  use the                                                               
entire wage  base [to make  those calculations].  If  a declining                                                               
wage base is  used, pretty soon there would  be 200-300 employees                                                               
left  that  hadn't  retired  yet, and  "you'd  be  paying  10,000                                                               
percent of  their salary,"  because [the  employer] still  has to                                                               
contribute the same  dollar amount and would not  be spreading it                                                               
over the [entire] wage base.                                                                                                    
                                                                                                                                
11:30:21 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  GRUENBERG  asked  Mr.  Dunne  about  a  study  he                                                               
previously mentioned  that shows  that, over  last 25  years, the                                                               
earning power of governmental employees has declined 30 percent.                                                                
                                                                                                                                
11:30:51 AM                                                                                                                   
                                                                                                                                
MR.  DUNNE recollected  that that  study was  part of  the public                                                               
safety employees'  negotiation, and  he offered  to track  down a                                                               
copy.                                                                                                                           
                                                                                                                                
11:31:14 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON echoed that he would like a copy of the study.                                                                     
                                                                                                                                
11:31:51 AM                                                                                                                   
                                                                                                                                
CHAIR  SEATON noted  that Mr.  Dunne had  mentioned the  existing                                                               
tiers during  his testimony.  He  noted that HB 238  would change                                                               
three things:   First,  a preferred provider  drug list  would be                                                               
required for existing  employees.  Second, the  bill would change                                                               
the definition of the Ad  Hoc Post Retirement Pension Adjustments                                                               
(PRPAs), so that "when the system  can support it" means when the                                                               
system is  100 percent  funded.  Third,  the bill  would equalize                                                               
contributions  between employers  and employees.   He  noted that                                                               
Mr. Dunne had testified to  that and indicated that the committee                                                               
would give that careful consideration.                                                                                          
                                                                                                                                
11:33:15 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE GRUENBERG  said Representative Elkins had  asked a                                                               
question  regarding  the  meaning  of  "qualified  domestications                                                               
relations order" (QDRO).   He said QDROs are  required under both                                                               
federal  and  state  law  to  meet  the  requirements  "of  these                                                               
statutes"  and  the  Employment Retirement  Income  Security  Act                                                               
(ERISA).  He offered further details.                                                                                           
                                                                                                                                
11:34:45 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON explained  that in the bill,  "member" means someone                                                               
who was in  a retirement program and  "participant" could include                                                               
a child or spouse, for example.                                                                                                 
                                                                                                                                
11:35:19 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE GRUENBERG added that those  two words are terms of                                                               
art that are known throughout the industry.                                                                                     
                                                                                                                                
The committee took an at-ease from 11:35:42 AM to 11:36:49 AM.                                                              
                                                                                                                                
11:36:50 AM                                                                                                                   
                                                                                                                                
CHAIR  SEATON  mentioned  the  article  in  the  March  6,  2005,                                                               
Anchorage Daily  News, written by  David Reume  entitled "State's                                                             
salaries are  falling behind".   [The article is included  in the                                                               
committee packet.]                                                                                                              
                                                                                                                                
11:37:46 AM                                                                                                                   
                                                                                                                                
KATIE SHOWS,  Staff to Representative  Paul Seaton,  Alaska State                                                               
Legislature,  on behalf  of Representative  Seaton, Chair  of the                                                               
House  State   Affairs  Standing  Committee,   sponsor,  directed                                                               
attention  to  a  [single-page,   double-sided]  handout  in  the                                                               
committee packet.   She  said the  handout is  a model  showing a                                                               
defined contribution pension account amount,  based on a model by                                                               
Richard Solie,  Ph.D.  She  stated, "All offices have  this model                                                               
and have  been working with it."   She directed attention  to the                                                               
front  page, entitled,  "Projected Benefits-Rate  of Return  6.73                                                               
percent."  She said that is  based on the Anchorage "CPI" of 3.73                                                               
percent and  a [real rate of  interest] of 3 percent.   She noted                                                               
that the  real rate of interest  mistakenly shows on the  page as                                                               
4.52 percent,  and should  read 3 percent.   It's  a conservative                                                               
rate of return based on  the assumption that individually managed                                                               
accounts  will   collect  less  interest  than   a  group-managed                                                               
account,  because  the  employee will  choose  more  conservative                                                               
investment options.                                                                                                             
                                                                                                                                
11:40:32 AM                                                                                                                   
                                                                                                                                
MS. SHOWS  said the chart  shows what  the amount of  the defined                                                               
benefit account lump  sum would be at termination at  10, 20, 30,                                                               
and 40 years.   She said the  lump sum amounts would  be the same                                                               
for both  males and  females, assuming a  base salary  of $37,538                                                               
and  a salary  increase,  including inflation,  of 5.73  percent.                                                               
She  highlighted further  details regarding  the lump  sums.   In                                                               
response  to  a  question  from  Chair  Seaton,  she  stated  her                                                               
understanding  that  the  column  which shows  the  lump  sum  at                                                               
termination is "in the real  dollar value at retirement," whereas                                                               
the  column that  shows  the beginning  annuity  in 2004  dollars                                                               
shows the annual  pension benefit for the  retiree, calculated in                                                               
2004 dollars.   She noted  that the  reason the number  is higher                                                               
for men than  women, under the beginning annuity  in 2004 dollars                                                               
column,  is because  women tend  to live  longer than  men.   She                                                               
directed attention  to the last  column, which shows  the percent                                                               
funded  compared  to  the  current defined  benefit  plan.    She                                                               
offered  an example.    She  added, "And  that  also assumes  the                                                               
defined contribution pension account  percentage of 15.5 percent,                                                               
which  is what  HB 238  has for  PERS employees.   It's  slightly                                                               
higher -  15.75 percent - for  TRS employees.  So,  after medical                                                               
benefits  are  taken  out  of  the  equation,  this  is  what  is                                                               
attributed to a defined contribution account."                                                                                  
                                                                                                                                
11:43:48 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE GRUENBERG  directed attention to a  portion of the                                                               
fourth  paragraph  of  previous  testifier  Mr.  Dunne's  written                                                               
testimony, which read:                                                                                                          
                                                                                                                                
     Most  state  employees have  not  had  a pay  raise  in                                                                    
     several years.   We  are scheduled  to receive  a small                                                                    
     (1.5%) raise this year ....                                                                                                
                                                                                                                                
REPRESENTATIVE  GRUENBERG said  it  looks like  the charts  being                                                               
reviewed assume a salary increase  of 5.73 percent the first five                                                               
years, then  4.23 percent,  based on  the assumptions  of Mercer.                                                               
He said that seems to be contrary to what Mr. Dunne has said.                                                                   
                                                                                                                                
11:44:37 AM                                                                                                                   
                                                                                                                                
MS. SHOWS responded as follows:                                                                                                 
                                                                                                                                
     The  assumptions  included  here [are]  a  real  salary                                                                    
     increase of 1.5  percent for the first  five years, and                                                                    
     then  .5 percent  for  the following  years.   So,  the                                                                    
     additional percentage  is indexed  for inflation.   And                                                                    
     we  are going  off  of  - as  is  Dr.  Solie's table  -                                                                    
     Mercer's assumptions.                                                                                                      
                                                                                                                                
REPRESENTATIVE GRUENBERG  said he is  just trying to  compare the                                                               
chart in  front of  the committee  with the  conflicting previous                                                               
testimony.                                                                                                                      
                                                                                                                                
11:45:17 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON answered that's correct.                                                                                           
                                                                                                                                
11:45:42 AM                                                                                                                   
                                                                                                                                
MS. SHOWS  turned to the back  of the page, which  shows the same                                                               
headings, but  for a rate  of return of  8.25 percent.   She said                                                               
it's  a far  more  generous percentage  compared  to the  current                                                               
plan.   She  noted that  she  could make  available the  computer                                                               
program  which  she  used  to  project  these  assumptions.    In                                                               
response to a question from  Chair Seaton, she confirmed that the                                                               
chart is calculated for PERS.                                                                                                   
                                                                                                                                
11:47:11 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON made the following observation:                                                                                    
                                                                                                                                
     Basically,  the  analysis  is   showing  that,  if  the                                                                    
     defined  contribution  rate  of   return  is  equal  to                                                                    
     Mercer's  rate  of return  ...,  then  ... the  defined                                                                    
     contribution plan actually - other  than the 10 years -                                                                    
     ... for 20, 30, or 40  years of service is generating a                                                                    
     much  more lucrative  plan for  the  employee than  the                                                                    
     current  plan.    However,  if we're  looking  at  a  2                                                                    
     percent  or  ... less  return  rate  ..., [and]  if  we                                                                    
     assume  that employees  managing  their  own money  are                                                                    
     going to  earn less than  the PERS investment,  then we                                                                    
     see  that it  doesn't  compare nearly  as well,  unless                                                                    
     you're  a male  and you've  been in  the system  for 40                                                                    
     years.                                                                                                                     
                                                                                                                                
CHAIR SEATON said he thinks  those are issues the committee needs                                                               
to wrestle with.                                                                                                                
                                                                                                                                
11:48:31 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  GRUENBERG  noted  that   during  a  divorce,  one                                                               
question often  involves what a  pension is  worth.  Many  of the                                                               
arguments revolve around the assumptions that are made.                                                                         
                                                                                                                                
11:49:31 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON  reminded the committee that  Mercer [Human Resource                                                               
Consulting]  is the  company that  projects the  actuarials.   He                                                               
also  mentioned  Milman,  another  actuarial firm  used  in  2001                                                               
specifically  to audit  the results  provided by  Mercer.   Chair                                                               
Seaton said that information is available through his office.                                                                   
                                                                                                                                
                                                                                                                                
11:51:36 AM                                                                                                                   
                                                                                                                                
CHAIR  SEATON indicated  that  HB  238 would  set  "a 20  percent                                                               
rate."    Subtracting  out  the medical  portion,  which  is  3.5                                                               
percent  medical and  1 percent  health care  reimbursement rate,                                                               
what is left is "a very  good plan that's better than the defined                                                               
benefit  plan that  we have,  if we  are using  the 8.25  percent                                                               
return rate on the  account."  He added, "Or we  have a plan that                                                               
doesn't match up  if we say that we're going  to earn 1.5 percent                                                               
less  than  retirement  and  benefits   currently  earns  on  the                                                               
assumptions."   He explained  that all  the assumptions  are "the                                                               
same on both, except for the rate of return."                                                                                   
                                                                                                                                
11:52:42 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  GRUENBERG asked  if there  could be  a plan  made                                                               
available  to   give  people  the   option  of   investing  their                                                               
retirements themselves or having someone else do it.                                                                            
                                                                                                                                
11:53:09 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON  answered, "Sure."   He clarified that HB  238 would                                                               
not allow  people to  individually manage  their funds;  it would                                                               
provide for  a selection  of money managers,  similar to  that in                                                               
[the state's  Supplemental Benefits System (SBS)],  to manage the                                                               
fund.  There  have been a number of studies  that have shown that                                                               
the employee managing his/her own  money is more conservative and                                                               
thus  receives  less  reward  from  his/her  pension  fund.    He                                                               
suggested one option  may be to have one board  manage the money,                                                               
but in individual accounts.                                                                                                     
                                                                                                                                
11:55:52 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE GRUENBERG responded that  he thinks that's a great                                                               
idea;  however,  he suggested  that  it  should  be left  to  the                                                               
employee to choose one way or the other.                                                                                        
                                                                                                                                
11:56:17 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON  said that's  what is  being considered  "with these                                                               
diversities."                                                                                                                   
                                                                                                                                
11:56:50 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE GARDNER referred to  a white paper from NEA-Alaska                                                               
showing   Nebraska's  experience   of  changing   to  a   defined                                                               
contribution plan  and then  changing back  to a  defined benefit                                                               
plan.                                                                                                                           
                                                                                                                                
MR. BJORK  explained that that happened  because the individually                                                               
directed  accounts had  a  lower  rate of  return  and could  not                                                               
sustain retirement.   He noted that West Virginia  made a similar                                                               
decision a  week ago to  return from a defined  contribution plan                                                               
to a defined benefit plan for the same reason.                                                                                  
                                                                                                                                
11:58:09 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE GARDNER  asked what  those states' rate  of return                                                               
was.                                                                                                                            
                                                                                                                                
11:58:17 AM                                                                                                                   
                                                                                                                                
MR.  BJORK answered  that  the  rate of  return  in Nebraska  was                                                               
approximately 6 percent, and it  is recognized that it takes 8.25                                                               
percent to  generate the kind of  return needed to have  a viable                                                               
retirement.   He said the  numbers were  about the same  for West                                                               
Virginia.                                                                                                                       
                                                                                                                                
11:59:15 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  GRUENBERG  said  he   would  like  to  hear  from                                                               
witnesses from one of those two states.                                                                                         
                                                                                                                                
11:59:35 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON  said paper  work will  be made  available regarding                                                               
West Virginia.   He asked if  some of Mr. Bjork's  concerns would                                                               
be  alleviated  if [the  Alaska  State  Pension Investment  Board                                                               
(ASPIB)]  was investing  the  money  at the  same  rate that  the                                                               
defined benefit plan would generate.                                                                                            
                                                                                                                                
12:00:46 PM                                                                                                                   
                                                                                                                                
MR. BJORK  answered yes.   He stated, "This  rate of return  is a                                                               
critical  money-management   assumption  within   any  retirement                                                               
system, and we  believe ASPIB has done  a very good job  ... - it                                                               
models the Alaska Permanent Fund."                                                                                              
                                                                                                                                
12:01:18 PM                                                                                                                   
                                                                                                                                
CHAIR  SEATON noted  that  a  report last  year  showed that  the                                                               
retirement  funds were  actually producing,  over time,  a higher                                                               
rate of  return than the Alaska  Permanent Fund did.   He offered                                                               
further details.                                                                                                                
                                                                                                                                
12:01:52 PM                                                                                                                   
                                                                                                                                
MR. BJORK  said employees are  naturally "risk averse"  and ASPIB                                                               
has the capacity to "dot that professional management."                                                                         
                                                                                                                                
12:02:10 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  GRUENBERG  suggested  that   a  common  theme  is                                                               
security and  rate of investment.   He applauded the work  of the                                                               
chair and  the work that  the committee is  doing.  He  said "the                                                               
other bill" that  would change the makeup of  the boards concerns                                                               
him, and he opined that it  is imperative to have "the best, most                                                               
honest  people" on  the boards  to "maximize  the return  and the                                                               
security."                                                                                                                      
                                                                                                                                
12:03:33 PM                                                                                                                   
                                                                                                                                
CHAIR SEATON  reviewed that  ASPIB is  an investing  board, while                                                               
the  TRS and  PERS Boards  deal mainly  with appeals  and setting                                                               
rates.   He noted  that one  section of  HB 238  would set  an 11                                                               
percent  floor  on  employer contributions.    He  mentioned  the                                                               
unfunded  liability  and  said,  "If  ...  the  state  and  local                                                               
governments have  to write checks  for $15 billion over  the next                                                               
25  years and  have  not  collected that  money,  that  is a  big                                                               
problem within the system."   He stated his understanding that 86                                                               
percent  of the  TRS retirement  section is  funded, which  means                                                               
it's in  much better  shape; "it put  a floor on  and did  not go                                                               
down below  11 percent."   He offered  further details  and said,                                                               
"It's a question  of the bottom line  and how we get  there."  He                                                               
said  the committee  members could  come in  individually to  his                                                               
office to view a Power Point presentation.                                                                                      
                                                                                                                                
12:06:45 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE ELKINS suggested that  it might be advantageous to                                                               
do the Power Point presentation before the entire committee.                                                                    
                                                                                                                                
12:07:05 PM                                                                                                                   
                                                                                                                                
TOM HARVEY, Executive Director,  NEA-Alaska, testifying on behalf                                                               
of NEA-Alaska,  commended Ms. Shows  for "generating  a mechanism                                                               
of looking  at lots of scenarios."   He said NEA-Alaska  has also                                                               
developed several  charts showing actual cases  across the state,                                                               
and he  offered to make  those charts available to  the committee                                                               
upon request.   He said Mr.  Bjork pointed out that  the question                                                               
to ask is, "What are the assumptions you're going to use?"                                                                      
                                                                                                                                
MR. HARVEY noted that, regarding  salary increases, over the past                                                               
16 years, the teacher average  salary has increased 1.36 percent.                                                               
He  said,  "If  you're  making   an  assumption  that  somebody's                                                               
salary's going to increase by  ... 5.73 percent, then sure, their                                                               
annuity's  going to  look good  at the  other end.   But  when in                                                               
reality  what they're  getting are  increases of  1.36 [percent],                                                               
inflation alone  is going  to eat  more of  that up,  because the                                                               
inflation, which is another assumption  that I'd like to check on                                                               
...,  should be  the  assumption for  everything  that the  state                                                               
does."   He recalled being  continually told by  actuaries during                                                               
work on  the Percent of  Market Value  (POMV) last year  that 2.6                                                               
percent was  the inflation rate  over any 10-year period  of time                                                               
that "you would pick in the State of Alaska."  He continued:                                                                    
                                                                                                                                
     So,   we  generated   charts  at   2.6  [percent]   and                                                                    
     discovered  some alarming  things  that  occur at  that                                                                    
     rate  of inflation,  versus a  salary increase  of only                                                                    
     1.3 [percent].                                                                                                             
                                                                                                                                
MR. HARVEY stated  his willingness to work with  the committee on                                                               
any  number of  scenarios.   He said  teachers do  better in  the                                                               
first nine  years because of  the step increases.   However, when                                                               
they get to the  top and there are either no  raises or raises of                                                               
only 1.36 percent, that's when  the trouble begins, "particularly                                                               
when you're suggesting that a male  has to work 40 years in order                                                               
to get to a defined contribution  plan that will look the same as                                                               
the defined benefit plan."                                                                                                      
                                                                                                                                
12:11:08 PM                                                                                                                   
                                                                                                                                
CHAIR  SEATON  clarified,  "That  is  if  you  calculate  defined                                                               
benefit  at   8.25  [percent]  and  ...   you  calculate  defined                                                               
contribution at 6.73 [percent]."  He offered further details.                                                                   
                                                                                                                                
12:11:44 PM                                                                                                                   
                                                                                                                                
MR.  HARVEY said  Chair Seaton  hit  on a  potential solution  of                                                               
ensuring that  it is  an entity  like the  ASPIB Board  doing the                                                               
management so  that the  8.25 percent  return can  be guaranteed.                                                               
He stated that  the other issue will be the  assumption on health                                                               
care.                                                                                                                           
                                                                                                                                
12:13:00 PM                                                                                                                   
                                                                                                                                
MR.  HARVEY,  in  response  to   a  comment  from  Representative                                                               
Gruenberg, reiterated that  he has a simple chart  that shows the                                                               
teacher  average  salaries.   He  offered  more details  and,  in                                                               
response  to  Chair  Seaton,  said   he  would  send  it  to  the                                                               
committee.                                                                                                                      
                                                                                                                                
12:14:04 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE GRUENBERG  suggested that his staff  would benefit                                                               
from  some   informal  individual  instruction   regarding  these                                                               
issues.                                                                                                                         
                                                                                                                                
12:15:10 PM                                                                                                                   
                                                                                                                                
CHAIR  SEATON said  his staff  is already  doing that  with other                                                               
groups and  would be happy to  involve Representative Gruenberg's                                                               
staff and anyone else's staff.                                                                                                  
                                                                                                                                
12:17:07 PM                                                                                                                   
                                                                                                                                
CHAIR SEATON  directed attention to  a handout, "State  of Alaska                                                               
PERS &  TRS Proposed  Medical Program House  State Affairs."   He                                                               
asked the committee to concentrate  on the "pre-65" benefits.  He                                                               
said he  doesn't want to  go through this without  the department                                                               
representatives  who  have  not  yet   arrived  at  the  meeting.                                                               
Notwithstanding that,  he proffered that  there should be  a fair                                                               
amount  of difference  in  what the  contribution  rate must  be,                                                               
depending on how  the medical program is designed.   He discussed                                                               
some differences between PERS and TRS that must be considered.                                                                  
                                                                                                                                
12:20:28 PM                                                                                                                   
                                                                                                                                
BRADLEY  FLUETSCH  told the  committee  that  he is  a  financial                                                               
consultant  with Wells  Fargo Investment,  but  is testifying  on                                                               
behalf  of himself.   He  referred to  the "projected  benefits -                                                               
rate  of  return 6.73  percent"  page  and  said if  the  defined                                                               
contribution  pension account  percentage assumption  of 15.5  is                                                               
"ramped up"  to 28.5 and  the columns are "rerun,"  the [numbers]                                                               
would  be  almost  doubled.   He  indicated  that  when  deferred                                                               
[compensation]  is added,  the  retirement  plan becomes  "fairly                                                               
attractive."                                                                                                                    
                                                                                                                                
MR. FLUETSCH,  regarding West Virginia  and Nebraska,  said there                                                               
is good evidence of how  Alaskans invest their retirement through                                                               
SBS.  He  suggested, "Let's take a look at  the target retirement                                                               
funds -  target 2015,  target 2020.   These are  retirement funds                                                               
designed  for employees  retiring on  or about  a specific  year.                                                               
How are they doing relative to  the 8.25 and the 6.73 [percent]?"                                                               
Mr.  Fluetsch also  recommended  looking at  the Alaska  Balanced                                                               
Fund  to see  how  it's doing.   The  last  thing he  recommended                                                               
asking is:   "What is  the break-even  rate of return,  where the                                                               
assumptions zero  out ... where  the defined  contribution equals                                                               
the defined  benefit, so that  in this percentage  column they're                                                               
all zeros?"                                                                                                                     
                                                                                                                                
12:23:26 PM                                                                                                                   
                                                                                                                                
CHAIR SEATON  informed Mr.  Fluetsch that  he has  requested that                                                               
information regarding  SBS, the different funds,  and how they've                                                               
been faring.   Another consideration  will be whether or  not SBS                                                               
should  be a  factor in  a rewrite  of the  program.   He offered                                                               
further details.                                                                                                                
                                                                                                                                
12:24:48 PM                                                                                                                   
                                                                                                                                
MR. FLUETSCH,  in response to  a comment by Chair  Seaton, stated                                                               
that everybody participates  in SBS at the  same rate; therefore,                                                               
he  clarified  that  Chair  Seaton   is  talking  about  deferred                                                               
compensation.                                                                                                                   
                                                                                                                                
12:25:58 PM                                                                                                                   
                                                                                                                                
HEATH HILYARD,  Staff to Representative Mike  Kelly, Alaska State                                                               
Legislature, on  behalf of Representative  Kelly, noted  that the                                                               
State of  Michigan changed to  a defined contribution  plan about                                                               
10 years  ago, and he  recommended that Michigan's plan  could be                                                               
used as a comparison model.                                                                                                     
                                                                                                                                
12:26:43 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  GRUENBERG  asked  whether  any  of  the  regional                                                               
divisions  of [the  Council of  State Governments  (CSG)] or  the                                                               
National Conference  of State Legislatures  (NCSL) have  any task                                                               
forces or committees working on this issue on an ongoing basis.                                                                 
                                                                                                                                
12:27:14 PM                                                                                                                   
                                                                                                                                
MR. HILYARD offered  his belief that NCSL is, but  perhaps CSG is                                                               
not  involved as  much.   He  said he  has also  looked into  the                                                               
American  Legislative  Exchange  Council.     In  response  to  a                                                               
question from Chair Seaton and  Representative Gruenberg, he said                                                               
he  doesn't know  if  there are  any  House Representatives  from                                                               
Alaska serving on [the NCSL] committee.                                                                                         
                                                                                                                                
12:28:20 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE GRUENBERG  opined that as the  Legislative session                                                               
winds  down and  the  Interim  begins, it  is  important to  have                                                               
"somebody sitting  on ...  that committee, whatever  it is."   He                                                               
offered to look into the matter.                                                                                                
                                                                                                                                
12:29:09 PM                                                                                                                   
                                                                                                                                
MR.  HILYARD  stated  his  belief  that  Representative  Anderson                                                               
serves on the  Labor & Commerce labor committee for  NCSL, but he                                                               
doesn't know  if that committee  has purview over  retirement and                                                               
benefit issues.                                                                                                                 
                                                                                                                                
12:30:03 PM                                                                                                                   
                                                                                                                                
CHAIR SEATON  noted that the  information regarding the  State of                                                               
Michigan's plan  was being distributed.   He asked  the committee                                                               
members to  go through the sectional  and bill on their  own time                                                               
and  be prepared  to  go through  it  on Tuesday,  April  5.   He                                                               
indicated  that it  may be  necessary  to hold  an informal  work                                                               
session and  told people to let  him know if they  are interested                                                               
in participating.                                                                                                               
                                                                                                                                
[HB 238 was heard and held.]                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
State  Affairs  Standing  Committee   meeting  was  adjourned  at                                                               
12:31:29 PM.                                                                                                                  

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