03/19/2002 08:05 AM House STA
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+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE STATE AFFAIRS STANDING COMMITTEE
March 19, 2002
8:05 a.m.
MEMBERS PRESENT
Representative John Coghill, Chair
Representative Jeannette James
Representative Hugh Fate
Representative Gary Stevens
Representative Peggy Wilson
Representative Harry Crawford
Representative Joe Hayes
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 304
"An Act relating to disposition of income of the permanent fund;
and providing for an effective date."
- MOVED HB 304 OUT OF COMMITTEE
HOUSE BILL NO. 480
"An Act providing that the death of a state employee killed
because of their job status off the job site shall be considered
an occupational death for purposes of survivor's pension
benefits."
- MOVED CSHB 480(STA) OUT OF COMMITTEE
HOUSE BILL NO. 380
"An Act relating to reimbursement for certain Medicare premium
charges for persons receiving benefits from the teachers'
retirement system, the judicial retirement system, the elected
public officers retirement system, and the public employees'
retirement system."
- HEARD AND HELD
HOUSE BILL NO. 400
"An Act relating to contributions from permanent fund dividends
for municipal school districts and regional educational
attendance areas; and providing for an effective date."
- HEARD AND HELD
HOUSE BILL NO. 426
"An Act requiring state agencies to provide for electronic
submission of forms and relating to annual reports of state
agencies."
- SCHEDULED BUT NOT HEARD
SENATE BILL NO. 297
"An Act moving employees of the Alaska mental health trust land
unit of the Department of Natural Resources from the partially
exempt service to the exempt service."
- SCHEDULED BUT NOT HEARD
HOUSE JOINT RESOLUTION NO. 5
Proposing an amendment to the Constitution of the State of
Alaska relating to the duration of a regular session.
- SCHEDULED BUT NOT HEARD
PREVIOUS ACTION
BILL: HB 304
SHORT TITLE:PERM. FUND INCOME/ DIVIDENDS/ FUNDS
SPONSOR(S): REPRESENTATIVE(S)WHITAKER
Jrn-Date Jrn-Page Action
01/14/02 1954 (H) PREFILE RELEASED 1/4/02
01/14/02 1954 (H) READ THE FIRST TIME -
REFERRALS
01/14/02 1954 (H) STA, FIN
01/16/02 1992 (H) COSPONSOR(S): FATE
02/16/02 (H) STA AT 10:00 AM BUTROVICH 205
02/16/02 (H) -- Meeting Postponed to
2/23/02 --
02/23/02 (H) STA AT 10:00 AM HOUSE FINANCE
519
02/23/02 (H) Heard & Held
02/23/02 (H) MINUTE(STA)
03/19/02 (H) STA AT 8:00 AM CAPITOL 102
BILL: HB 480
SHORT TITLE:DEATH/SURVIVOR BENEFITS IN PERS & TRS
SPONSOR(S): REPRESENTATIVE(S)DYSON
Jrn-Date Jrn-Page Action
02/19/02 2317 (H) READ THE FIRST TIME -
REFERRALS
02/19/02 2317 (H) STA
03/12/02 (H) STA AT 8:00 AM CAPITOL 102
03/12/02 (H) -- Meeting Postponed --
03/14/02 (H) STA AT 8:00 AM CAPITOL 102
03/14/02 (H) Heard & Held
03/14/02 (H) MINUTE(STA)
03/19/02 (H) STA AT 8:00 AM CAPITOL 102
BILL: HB 380
SHORT TITLE:REIMBURSE CERTAIN RETIREE MEDICARE CHARGE
SPONSOR(S): REPRESENTATIVE(S)JAMES
Jrn-Date Jrn-Page Action
02/04/02 2143 (H) READ THE FIRST TIME -
REFERRALS
02/04/02 2143 (H) STA, FIN
02/19/02 2329 (H) COSPONSOR(S): HUDSON
02/28/02 (H) STA AT 8:00 AM CAPITOL 102
02/28/02 (H) Scheduled But Not Heard
03/14/02 (H) STA AT 8:00 AM CAPITOL 102
03/14/02 (H) Scheduled But Not Heard
03/19/02 (H) STA AT 8:00 AM CAPITOL 102
BILL: HB 400
SHORT TITLE:PERMANENT FUND CONTRIBUTION FOR EDUCATION
SPONSOR(S): REPRESENTATIVE(S)OGAN
Jrn-Date Jrn-Page Action
02/11/02 2205 (H) READ THE FIRST TIME -
REFERRALS
02/11/02 2205 (H) STA, HES, FIN
02/11/02 2205 (H) REFERRED TO STATE AFFAIRS
02/13/02 2258 (H) COSPONSOR(S): DYSON
02/19/02 2329 (H) COSPONSOR(S): MEYER, SCALZI,
FATE
03/19/02 (H) STA AT 8:00 AM CAPITOL 102
WITNESS REGISTER
REPRESENTATIVE JIM WHITAKER
Alaska State Legislature
Capitol Building, Room 411
Juneau, Alaska 99801
POSITION STATEMENT: Testified as sponsor of HB 304.
GAYLE HARBO, Retired Teacher
PO Box 10201
Fairbanks, Alaska 99712
POSITION STATEMENT: Testified on HB 380.
SARA HORNBERGER, Chair
Anchorage Chapter
Retired Public Employees of Alaska;
Life Member, National Education Association - Alaska;
National Education Association - Retired
PMB 438/3705 Arctic Boulevard
Anchorage, Alaska 99503-5774
POSITION STATEMENT: Testified in support of HB 380.
CHARLES COSPER, Life Member and Past President
Retired Public Employees of Alaska
(No address provided)
POSITION STATEMENT: Testified in support of HB 380.
JAY DULANY
19241 Middleton Loop
Eagle River, Alaska 99567
POSITION STATEMENT: Testified in support of HB 380.
MERRITT OLSON, Member
National Education Association - Retired
1032 W 11th Avenue
Anchorage, Alaska 99501
POSITION STATEMENT: Urged the committee to give HB 380 serious
consideration.
GUY BELL, Director
Health Benefits Section
Division of Retirement & Benefits
Department of Administration
PO Box 110203
Juneau, Alaska 99811-0203
POSITION STATEMENT: Discussed the fiscal note for HB 380.
JERRY PATTERSON, President
National Education Association - Retired
POSITION STATEMENT: Testified on HB 380.
BILL CHURCH, Staff
to Representative Scott Ogan
Alaska State Legislature
Capitol Building, Room 108
Juneau, Alaska 99801
POSITION STATEMENT: Testified on behalf of the sponsor of HB
400.
EDDY JEANS, Manager
School Finance and Facilities Section
Education Support Services
Department of Education and Early Development
801 W 10th Street, Suite 200
Juneau, Alaska 99801-1894
POSITION STATEMENT: Testified in opposition to HB 400.
ACTION NARRATIVE
TAPE 02-28, SIDE A
Number 0001
CHAIR JOHN COGHILL called the House State Affairs Standing
Committee meeting to order at 8:05 a.m. Representatives
Coghill, Fate, Stevens, Wilson, Crawford, and Hayes were present
at the call to order. Representative James arrived as the
meeting was in progress.
HB 304-PERMANENT FUND INCOME
CHAIR COGHILL announced that the first order of business was
HOUSE BILL NO. 304, "An Act relating to disposition of income of
the permanent fund; and providing for an effective date."
Number 0125
REPRESENTATIVE JIM WHITAKER, Alaska State Legislature, told the
committee that the proposed bill would require that $200 million
of the earnings from the earnings reserve account (ERA) be
transferred to the general fund.
CHAIR COGHILL mentioned a new section giving a calculation. He
asked Representative Whitaker to explain the calculation that
"may be different than the $200 million."
REPRESENTATIVE WHITAKER answered that the lesser amount will be
transferred if the earnings, less inflation-proofing and less
dividend distribution, are less than $200 million.
CHAIR COGHILL indicated that there were two specific years
mentioned in the bill: "one deals under the calculation, and
one is a straightforward $200 million, if I understand
correctly."
REPRESENTATIVE WHITAKER said, "That's correct." He continued:
After the initial year, assuming that the law remains
in effect, an inflation index will begin from that
year. And that year is 2003. Also, a population
index calculation will ... ensue from that year. So
this is an amount that is inflation indexed and
population indexed.
CHAIR COGHILL surmised that [the purpose of the proposed
legislation] was to make a formula with parameters.
REPRESENTATIVE WHITAKER said, "Correct."
Number 0326
REPRESENTATIVE STEVENS quoted Representative Whitaker as having
said more than once, "If we do nothing, the permanent fund
dividend will be gone ... within a decade." He asked him to
"carry us through that argument, so that people will understand
that issue."
REPRESENTATIVE WHITAKER responded, as follows:
An imbalanced budget of, roughly, $1 billion per year,
will utilize the earnings of the constitutional budget
reserve (CBR) in less than three years. Thereafter,
the general fund will have no balancing mechanism,
other than the earnings reserve account. Given that
the earnings reserve account is utilized to,
essentially, hold harmless the permanent fund corpus,
the draw down of general fund balancing and holding
harmless for the permanent fund corpus will simply
overwhelm the ability of the earnings reserve account.
And therefore, it, too, will deplete.
The best estimate that we can put forward, at this
point, is that, before the end of this decade, both
the constitutional budget reserve and the earnings
reserve account will be gone. At that point, the
dividend program will end, and the earnings from the
corpus of the permanent fund will go directly to
balance the general fund. That's the scenario. Some
would say it's a "worst-case" and, therefore, should
not be taken altogether seriously. I do no think that
it's a "worst-case." The best information that I can
gather, is that it is a "most probable case." That
being the case, it is incumbent upon us to take action
such as House Bill 304 to preclude that occurrence.
REPRESENTATIVE STEVENS highlighted the importance of making the
public aware that if [the legislature] does nothing, there could
be a very serious reduction in permanent fund dividends.
Number 545
REPRESENTATIVE FATE referred to Representative Whitaker's
aforementioned testimony regarding the end of decade scenario,
and asked whether the earnings of the corpus of the permanent
fund might be in jeopardy, if, for example, the bottom falls out
of the stock market, as it recently did.
REPRESENTATIVE WHITAKER pointed out that [the U.S.] is in the
third year of that particular scenario. However, it is
improbable that the trend will continue. In fact, the stock
market is beginning to rebound and have stability, if not upward
mobility, he said.
Number 681
REPRESENTATIVE JAMES asked if Representative Whitaker was
talking solely about the income from the earnings reserve and
not about the income of the corpus.
REPRESENTATIVE WHITAKER said she was correct.
REPRESENTATIVE JAMES asked what Representative Whitaker thought
the long-term calculation for the dividend ought to be.
REPRESENTATIVE WHITAKER, after further clarification of
Representative James's question, said that his preference was to
reformulate the dividend and have it reduced significantly. The
"1999 vote" made the opportunity to do that "highly improbable."
"This bill is intended to have the highest probability of
passing the legislature in light of what happened in 1999," he
said. He pointed out that [HB 304] does not touch the manner in
which the permanent fund is formulated.
REPRESENTATIVE JAMES said she agreed with that answer, "except
for the last part." She noted that her evaluation of the 1999
vote is different than that of many others; people have told her
that they have changed their minds about their vote in 1999.
She asked Representative Whitaker whether people have related
similar thoughts to him.
REPRESENTATIVE WHITAKER answered "Yes," and added that others
have asked him to not touch [the permanent fund]. He explained
that he has come to the conclusion that [HB 304] is in the
state's best interest.
Number 0840
REPRESENTATIVE JAMES asked about "the amount that this
calculates to here," and if it would be the lesser of $200
million.
REPRESENTATIVE WHITAKER said, "Just one caveat to that:
inflation and population indexing."
REPRESENTATIVE JAMES asked, "Do you believe that we can tax
ourselves enough and cut the budget enough to survive on $200
million out of the earnings reserve?"
REPRESENTATIVE WHITAKER responded that he likes to give simple,
straightforward answers, but Representative James's question
requires more explanation. He explained:
No, I do not believe that we can continue to either
hold flat budgets, or cut the budget. I think it's
going to be very, very difficult for the state to
maintain an infrastructure that allows for economic
growth into the future, if we do that. Therefore,
while there must be some cost-control mechanism on
government, as there should be on any economic
endeavor - and if we look at government in the context
of an economic endeavor, there is no conclusive
argument that I have heard that leads me to the
conclusion that there should not be a cost-control
mechanism associated with government.
Setting the cost-control portion of an overall plan
... aside then, and moving to, "Can we tax ourselves
to a balanced budget?" No, we cannot. The State of
Alaska is not designed, from its inception, to have
been taxed at a high enough level that government
would be paid for through taxation. And it would be
foolish of us to think that our population of 600,000
can pay enough taxes to pay for the required services
associated with government.
Number 1052
So, no, I don't think we can tax ourselves to a
balanced budget. You could requisite that some
utilization of permanent fund earnings be used, in
order to achieve that balance, yes. Do I think this
is a first step? Unfortunately, I do. And I do, in
particular, if we do not, as a state, accept our
responsibility for the fourth component of a
successfully balanced fiscal regime. That fourth
component is economic growth. If we do not build our
economy so as to sustain a reasonable tax base, we
cannot exceed to the levels that I know we can attain.
Instead, we will continue in a somewhat downward
spiral, we will continue to flounder, and we will have
great difficulty.
Do I think that this, then, is the ultimate answer to
the fiscal problems of the state - or a part of - as
it currently sits? No, I do not. I think that future
legislatures will have to revisit this issue. But, I
think, given political reality, that this is a
requisite first step. I think we've put ourselves at
significant risk of taking any step, if we change the
formulation of the permanent fund dividend.
Number 1149
REPRESENTATIVE JAMES noted her agreement with Representative
Whitaker's answer. She said that her evaluation of "why we are
where we are today" is explained by the same problem that
Representative Whitaker is relating to: the inability, or
unwillingness of the legislature to do anything about this,
before now, because the permanent fund dividend earnings seemed
to be "out of the question." She suggested that something be
put into statute that would change the formulation of the
dividend, perhaps in a graduated manner, "so that we're not
ripping it out from everybody's hands just that one time." She
commented that those people opposed to touching the dividend
also don't want earnings of the permanent fund touched.
Number 1250
REPRESENTATIVE JAMES said she understands that this is a
politically difficult issue, but she won't [give up thinking
that] intelligence will win out. She indicated that she
understands that part of the dilemma of not creating economic
development is a result "of this particular activity, over the
years." However, more money cannot be put into economic
development if there is not money. Furthermore, the budget must
be cut because "we have none." "But we have none, because we
won't go here. Isn't that true," she asked.
REPRESENTATIVE WHITAKER replied, "That is the conundrum we are
faced with, Representative James, yes."
REPRESENTATIVE WILSON said that this subject is frustrating for
the reasons just pointed out by Representative James. [The
committee members] have a responsibility to the state and to
their constituents to do the right thing, after studying the
issue, she said. However, sometimes that means making decisions
that constituents don't understand. She described this as a
"difficult situation."
Number 1395
REPRESENTATIVE FATE indicated that there has been information
stating that the permanent fund earnings reserve account can
sustain up to $250 million, some say $300 million, a year
without depleting the fund or stopping growth of that account.
He asked Representative Whitaker whether $200 [million] would be
a proper amount "under the formulation," or could that be
amended up to $250 [million] in future years.
REPRESENTATIVE WHITAKER replied that he would like to see the
amount amended upwardly, this year, in order to fund university
growth and pay for K-12 education; real needs necessary in order
for the [state's] economy to grow. He said, "I can't tell you
if it's either probable, or improbable, what the outcome might
be. That fight is yet to be had." He acknowledged that
Representative Fate was correct in his assertion that there is
probably room for growth, in regard to the use of the earnings
reserve account.
Number 1518
REPRESENTATIVE CRAWFORD noted that he agreed that [the
legislature] must do something. He said he believed that the
earnings in the permanent fund is the people's money, and, as
former governor Jay Hammond has indicated, [the legislature]
should put the money into the hands of the people and let the
government try to obtain what it can from the people, thereby
preventing runaway growth of government.
REPRESENTATIVE CRAWFORD continued by stating that he likes
Representative Hudson's idea to "tax the dividend" because it's
the most honest and straightforward way to access the earnings
of the permanent fund. Furthermore, according to Representative
Hudson's figures, that would save [the state] approximately $30
million in federal taxes. "It's not a hidden tax. I believe
this would be hidden from view; people wouldn't ... ever feel
like it was their money, if it were taken on the topside here,"
he said.
REPRESENTATIVE CRAWFORD noted that he is a member of the fiscal
policy caucus, which has been charged with filling the gap and
doing so fairly. He explained that he doesn't intend to hold up
HB 304 because he wants "all these things" to get onto "the
floor," for debate. However, "I don't agree with your approach
here," he said.
Number 1651
REPRESENTATIVE JAMES said she considers herself to be one of the
biggest proponents of economic development, and she emphasized
that she looks for opportunity for it everywhere. However, she
stated that she sees no hope for any new growth in economic
development in Alaska until [the legislature] has balanced its
"fiscal issue." Furthermore, the general public doesn't want to
pay taxes. Representative James said, "No one's going to come
in here and invest and create a business if they're the ones
that are going to get stuck with paying the bill." She stressed
the importance of moving this issue forward quickly, to fill the
budget gap. She characterized this year's efforts [of the
legislature] as only just the beginning.
REPRESENTATIVE JAMES said she came to the legislature nearly ten
years ago worrying about why "we" don't fix the things that "we"
build. Although there has been some headway made regarding the
issue, there is much left to do. She expressed concern that
there has been a pause in progress and [the situation] continues
to disintegrate. She listed school buildings, roads, access,
and infrastructure as items needing [the state's] attention.
Number 1788
REPRESENTATIVE JAMES said she could not tally, in her mind, the
amount of money [the legislature] would need to encourage new
economic development in the state nor could she sum the new
money [necessary to] invest into businesses. She related her
understanding that Representative Whitaker's [proposal] is to
take a small bite out of something that has been, previous to
now, untouchable." Representative James stated her uncertainty
that this [bill] would "even go by the ... the third floor
because of the promise to let [the] people vote on anything that
touches any of this money, which, I was opposed to it last time.
It didn't work. And I don't think it'll ever work again." She
opined that if [the legislature] fails in this issue, it will be
because it has not sufficiently explained to the public that
[the legislature] is working [to address] the severity of the
issue.
REPRESENTATIVE JAMES said her choice would be to redesign the
structure of the dividend. However, she said she believes the
dividend is necessary, if for no other reason than to protect
the fund itself. During the years when there was a permanent
fund, but no dividend, people wanted to spend it on a variety
causes, she pointed out.
Number 1865
REPRESENTATIVE JAMES remarked that although she cannot support
this provision, she is willing to move [HB 304] forward to have
more discussion [in the House Finance Standing Committee]. She
summarized the [reason] this issue exists, as follows: "Just
because no one has been willing to spend any money of the
earnings of the permanent fund."
REPRESENTATIVE JAMES continued:
By trying to design this to not go here, we have
completely shut down economic activity in our state
over the last few years. I don't necessarily believe
that's our fault ..., because we are here to recognize
people, and what they tell us to do is what we do.
Just like with kids do. And that's what we've done.
But I think we haven't worked hard enough on the
explanation of the reality of the issue. And there
will be a price to pay, sometime, for that. And every
single one of us will pay it.
Number 1934
REPRESENTATIVE FATE announced that he, also, was willing to move
on this legislation. He clarified his belief that there is no
one who has studied this [issue] who doesn't want good economic
development in the state. He noted that he was formerly a
businessman and a miner. He posited that it must be recognized
that economic development in [Alaska] takes time, [and it takes
time] before "we reap the proceeds." That time is not
available, which is one of the reasons that [the legislature]
has studied using the earnings reserve account (ERA). He noted
that studies had been made, within the House State Affairs
Standing Committee, in regard to a broad-based tax of one type
or another. He also mentioned there has been consideration of a
ceiling on spending. He concluded by expressing his
thankfulness that this bill has been brought forward. He
related his hope that the legislature can muster enough force so
that it does go to the third floor because this kind of thinking
and action is necessary.
REPRESENTATIVE FATE expressed his eagerness to move the bill
from committee.
REPRESENTATIVE WILSON asked if a vehicle was needed to put HB 20
in place, to access the ERA, or would that bill be a vehicle in
itself.
REPRESENTATIVE WHITAKER answered that HB 20 is separate from [HB
304]. At this point, whether or not the two are linked is a
discussion that will take place, but there is no link at this
time, he said. He pointed out that the funds from which both
[the proposed bills] would draw are finite; therefore, [the
legislature] needs to proceed with caution. He indicated that
[HB 340 is designed to] close the gap, whereas HB 20 would not;
therefore, any general fund offset to the imbalance associated
with [HB 304] is diminished by however much is spent under HB
20. That's the crux of that debate, he stated.
REPRESENTATIVE WILSON asked if HB 20 would also use the ERA.
REPRESENTATIVE WHITAKER explained that [HB 20] isn't
specifically [linked] to the ERA but rather to the earnings of
the permanent fund. However, the earnings of the permanent fund
go in the ERA, so, in effect, it would be coming from the same
fund source.
Number 2139
REPRESENTATIVE JAMES mentioned, per her staff's research, that
the estimated amount of the permanent fund inflation-proofing
for this year will be $602 million. She stated that "even
taking a holiday on inflation-proofing the fund might be a real
good idea." She pointed out that the 18- to 44-year-olds have
left [the state], because opportunities were not here. However,
those are the people needed to build the economy in the future.
Subsequently, if economic activity is stimulated, it will be
necessary to bring people back in. Therefore, she said she
believes there should be a simple, fair, and equitable income
tax in order to ensure that there is the money from new growth
to fund our police, fire, roads, schools, et cetera.
Furthermore, the number of people in the state over 65 is
growing, and there is a severe need for assisted living and
other forms of care for the elderly and disabled people.
REPRESENTATIVE JAMES concluded: "If we don't do something quick
... we're going to be in worse trouble ... and it's going to be
harder for us to pull out of the hole." She stated her belief
that the permanent fund was originally established for the
purpose of helping [the state] when it is in stress, which is
the current situation. Therefore, she suggested determining how
to [get] the maximum benefit [from the fund].
Number 2259
REPRESENTATIVE HAYES moved to report HB 304 out of committee
with individual recommendations and the accompanying zero fiscal
note. There being no objection, HB 304 moved out of House State
Affairs Standing Committee.
HB 480-STATE EMPLOYEE DEATH/SURVIVOR BENEFITS
Number 2286
CHAIR COGHILL announced that the next order of business was
HOUSE BILL NO. 480, "An Act providing that the death of a state
employee killed because of their job status off the job site
shall be considered an occupational death for purposes of
survivor's pension benefits."
CHAIR COGHILL reminded the committee that, after the March 14,
2001, hearing the sponsor considered [the committee's suggestion
to include TRS in a benefit package]. He noted that
Representative Dyson brought a committee substitute (CS),
Version F.
REPRESENTATIVE DYSON stated his belief that the inclusion of TRS
in Version F improves the bill.
CHAIR COGHILL recommended to the committee that it adopt Version
F.
Number 2373
REPRESENTATIVE STEVENS moved to adopt the proposed CS, Version
22-LS1547\F, Craver, 3/18/02, as a work draft. There being no
objection, Version F was adopted.
REPRESENTATIVE DYSON recounted that the original bill had been
drafted to close a loophole. He indicated that, presently,
employees covered under a suite of benefits would not be covered
if they were killed or injured while on the job, but off the job
site.
CHAIR COGHILL stated his understanding that the CS before the
committee includes TRS (Teachers' Retirement System) and PERS
(Public Employees' Retirement System), but does not provide for
the judicial branch. He mentioned Title 14 and Title 39 of the
statutes.
Number 2467
REPRESENTATIVE HAYES moved to report CSHB 480, Version 22-
LS1547\F, Craver, 3/18/02, out of committee with individual
recommendations and the accompanying zero fiscal note. There
being no objection, CSHB 480(STA) moved out of House State
Affairs Standing Committee.
HB 380-REIMBURSE CERTAIN RETIREE MEDICARE CHARGE
CHAIR COGHILL announced that the next order of business was
HOUSE BILL NO. 380, "An Act relating to reimbursement for
certain Medicare premium charges for persons receiving benefits
from the teachers' retirement system, the judicial retirement
system, the elected public officers retirement system, and the
public employees' retirement system."
Number 2530
GAYLE HARBO, Retired Teacher, testified via teleconference. She
began by saying that HB 380 is an important issue for Alaska's
seniors. She provided the following testimony:
Many of us, when we reached age 62, applied for social
security and found that because of two federal
provisions - the Government Pension Offset or the
Windfall Elimination Provision - we either did not
qualify to receive social security on our own or
through our spouse, or we were eligible for an amount
much smaller than we had anticipated. At age 65 all
seniors must apply for social security because of
Medicare. The payment of Medicare Part B is
mandatory, and since the most recent 11 percent
increase in 2001, it costs a bit over $600 a year.
There are at least three scenarios which apply for TRS
and PERS retirees applying for Medicare:
· You can apply for social security and be eligible
and then Medicare Part B is deducted from your
monthly check; or
· You can apply [for social security] and you're
denied and you have a spouse on social security
and the [Medicare] Part B is deducted from your
spouses social security check; or
· You can apply and be denied. You have no spouse,
so you have to send in your payment for Medicare
Part B.
This third scenario concerns me most because as we
know ... many seniors are on fixed incomes and as they
age have many additional costs simply caring for their
home, if they have one, and for themselves. This
additional burden of having to pay more than $600 a
year in mandatory medical insurance costs, and, more
importantly, having to remember to write a monthly
check or annual check, just doesn't seem right. I'm
not sure what happens if a senior forgets to write a
check. Our seniors who devoted their lives to living
and working and caring for children in Alaska deserve
more.
Also, in terms of cost of this provision, when our
retirees reach 65, and Medicare becomes the primary
health coverage, there's a tremendous savings to the
state in monthly health care premium per retiree, yet
the burden of an additional $50 per month for the
retirees is worrisome because of the fixed income of
most seniors, and because there's no guarantee the
monthly cost of Medicare Part B will not increase.
In the late '60s public school teachers, the school
districts, and the state each contributed 7 percent of
salary, a total of 21 percent, to fund the retirement
system for TRS. Later this was changed and the
employee contribution for TRS is now 8.65 percent, but
the total for the other two entities is paid for by
the employer, and it's only a little over 11 percent.
In 1999 the actuary for [the Division of] Retirement
and Benefits (R&B) estimated the cost to fund Medicare
Part B would require only .68 percent, that's less
than 1 percent, [increase] in the employer
contribution. This would still make the employer
share less than the 14 percent of 30 years ago, and
remember the cost for funding the Medicare Part B
reimbursement would be amortized over a period of 20
to 25 years. ... in a most recent actuarial report of
June 30, 2001, it shows that there may be in this next
year, for 2004, a one-time bump in the employer
contribution because R&B submitted a new data system.
However, the projected future employer contributions
still show a level of less than the 30-year goal of 14
percent.
I hope you will give careful consideration to this
very important legislation for Alaska's seniors - they
deserve it for their years of service to the state and
the school districts. Thank you once again for your
time.
Number 2752
SARA HORNBERGER, Chair, Anchorage Chapter, Retired Public
Employees of Alaska; Life Member, National Education Association
- Alaska; National Education Association - Retired, testified
via teleconference. She informed the committee that she has
been involved in public education since 1963. She also informed
the committee that she is a retiree under TRS and PERS. Ms.
Hornberger recalled that during her time at Naknek school, a
representative from TRS visited the school almost annually.
During the early '70s the TRS representative related the message
that once retired, in addition to retirement pensions, medical
insurance for retirees would be completely paid as part of the
retirement under the state's retirement funds. In 1974, Ms.
Hornberger resigned her position with Bristol Bay school and
thought she probably wouldn't teach again and thus decided to
withdraw her retirement funds. A TRS representative discouraged
her from such because he said once she reached retirement age
and hadn't withdrawn from the retirement system, Ms. Hornberger
would secure her medical insurance after retirement. However,
Ms. Hornberger related her belief that the monthly contributions
she made and the school district made in the retirement fund was
to cover all retirement costs, including any premiums such as
Medicare.
MS. HORNBERGER pointed out that school teachers and
administrators aren't the only state employees who were informed
their medical insurance would cost nothing after retirement.
The same was related to troopers, Alaska Department of Fish &
Game biologists, and (indisc.) enforcement officers.
Furthermore, this was printed in benefit booklets printed and
distributed by the state. Numerous examples of those printed
promises have been collected.
MS. HORNBERGER continued. She explained that when she turned 65
she discovered that she would be paying for medical coverage
under Medicare. She also learned that the State of Alaska
medical insurance program was no longer her primary coverage, as
she had been told. Upon retirement in 1997, the premium was
$45.50 and has risen to $54.00. Moreover, Medicare premiums are
predicted to steadily increase over the next few years.
Although these premiums may not seem like much, but for those on
a small fixed pension it's a fortune. Ms. Hornberger related
her impression that the Department of Administration views the
Medicare premium as an item on the table for negotiation.
However, a benefit that was promised as part of an employment
package doesn't have to be negotiated. "We do not feel that we
are negotiating with the Division of Retirement & Benefits for
payment of those premiums, we are asking the state to live up to
its promise to us and pay this premium out of the money we and
our employers deposited with the state in trust for such
payments. Alaska should honor its promise to Tier I state
retirees and pay the monthly Medicare [premium]."
TAPE 02-28, SIDE B
Number 2945
CHARLES COSPER, Life Member and Past President, Retired Public
Employees of Alaska (RPEA), testified via teleconference. This
issue is so important to many retirees. He said that during his
time as the past president of the RPEA, he was able to speak to
many of its over 20,000 members. Most of those retirees say the
same thing, that is that they were promised to have state health
care for life at no cost. It's time for the state to honor the
agreement that it made, he charged. Therefore, he urged the
committee to pass HB 380.
Number 2825
JAY DULANY testified via teleconference. He requested that if
HB 380 is passed, then the reimbursement/payment of the Medicare
premiums be before taxes in order that the amount won't be taxed
by the Internal Revenue Service (IRS) on the individual
retirees. Mr. Dulany noted his support of HB 380.
Number 2775
MERRITT OLSON, Member, National Education Association - Retired,
testified via teleconference. He noted that he has served as a
member and chair on the Teachers' Retirement Board. He also
noted that he is a member of the Trustee of the Alaska State
Pension Investment Board, which establishes policies for all of
the pensions funds. Mr. Olson informed the committee that it
should have his written testimony, from which he read the
following:
I have, too, ... long been concerned about what I
consider inequities that exist relative to the health
insurance benefits for retired teachers and public
employees in the state system. Member and employer
contributions pay for pension benefits and health
insurance at retirement through their membership
contributions. Although retirees pay the required
deductibles for health insurance, they are not
assessed premium charges until age 65. Then Medicare
automatically becomes their primary health coverage,
and members must begin to pay the Medicare premium for
insurance. It doesn't really measure up to that which
state employees (indisc.) under the state system.
Second additional charges to persons as they age tends
to run counter to normal practices in this country.
Older retirees, especially those who are in their mid-
to late-80s or 90s, are particularly hard hit. Their
pensions tend to be lower in amount as they retired
earlier and, consequently, with lower salaries while,
at the same time, the Medicare premium charges
continue to increase. Currently, the monthly premium
is $54 and it is ever increasing. Without the other
income beyond their rather meager pensions, the
elderly can be hard pressed to pay those charges.
That area is my particular concern. I think House
Bill 380 addresses this problem. I urge that you give
serious consideration to this legislation. I do thank
the committee for providing the opportunity to express
my thoughts on the issue. I want to commend
Representatives James and Hayes for their sponsorship
of this legislation.
Number 2549
REPRESENTATIVE JAMES, Alaska State Legislature, testified as the
sponsor of HB 380. She began by pointing out that this
legislation covers those in PERS, TRS, JRS (Judicial Retirement
System), and EPORS (Elected Public Officials Retirement System).
Representative James explained that she filed HB 380 per
request, although she supports the idea. She mentioned that
when one reaches age 65 one has to take Medicare. This is a
requirement that she detests. By requiring Medicare to be the
primary payer at age 65, it jeopardizes many seniors with regard
to the type of treatment they can obtain. Furthermore, there is
now discussion with regard to including prescription benefits in
Medicare. Although she said she was in favor of providing
prescription coverage to those dependent upon social security
and Medicare for their insurance, she disagreed with the
mandatory requirement for Medicare at age 65. Representative
James remarked that there needs to be many changes with Medicare
at the federal level. Therefore, at the state level the best
avenue seems to be to take care of this Medicare payment for
these retirees. Representative James turned to the fiscal note,
which is large, and commented that she is interested in the cost
of HB 380 for fiscal year 2003.
Number 2264
GUY BELL, Director, Health Benefits Section, Division of
Retirement & Benefits, Department of Administration, turned to
the analysis of the fiscal note. He pointed out that the annual
cost of HB 380 for PERS would be $10,759,700 and there would be
a smaller amount for TRS. Furthermore, the University of Alaska
for PERS is an annual cost of $1,294,000 and $536,100 for TRS.
Additionally, there would be costs to political subdivisions
that amount to $10,047,200 for PERS and to school districts the
cost would be $7,548,800 for TRS. Those figures come from the
rate impact of the 1.68 percent increase in the PERS
contribution rate. He explained that the reason the cost is so
high is because, historically, the retiree medical plan has been
supplemented by Medicare, once a person becomes Medicare
eligible. By adding this additional liability to the system,
the system needs to collect the money to pay for the benefit,
which occurs by increasing employer rates. Employee rates are
fixed while employer rates float based on total liability
amortized over about 25 years. Therefore, it's an additional,
unanticipated cost to the system. Mr. Bell pointed out that
[page 1] lines 9-12 of HB 380 is language that has been in
existence for quite sometime. That language specifies that the
benefits are supplemental to the Medicare plan, which is
historically how this plan has been administered.
CHAIR COGHILL stated that the sum of those figures is well over
$20 million. He surmised asked whether it would be a baseline
in growing or is the actuarial over a span of time.
MR. BELL specified that it's amortized over about 25 years. He
said that it's the annual cost, which would mean that it's
effectively a flat cost over the next 20 years. However, he
noted that it would depend upon the rate of inflation of
Medicare versus other plans.
CHAIR COGHILL surmised then that these costs would be directly
connected to the retirement funds.
MR. BELL answered that the fund owes more money in the way of
benefit payments than it expected. In order to collect that
money there is an impact on employer rates, and therefore
employer rates will increase. For example, the City of
Anchorage will have to contribute more in order to pay for these
retirement benefits. The amounts [on the fiscal note] are the
annual amounts that will be spread among the state and the
state's political subdivisions, which are the municipalities and
the school districts.
CHAIR COGHILL related his understanding that [the state would]
come up with an additional $10,759,000 out of PERS through a
rate increase.
MR. BELL agreed.
CHAIR COGHILL commented that such would be a significant draw.
Number 1937
REPRESENTATIVE JAMES said that she couldn't "buy into" that
total cost. She also said that she is looking for options to
cover this issue. If the state had the money, Representative
James said she would be willing to pay the total cost of
approximately $22 million. "I think it's the right thing to do,
but I'm not willing to pass a fiscal note such as this when
we're ... having the problems that we're having with the current
budget issue," she remarked.
CHAIR COGHILL related his understanding that the contribution
rate that would be increased would be to the employee and the
employer.
MR. BELL specified that only the employer contribution rate
would change under HB 380. The employee contribution rate is
fixed. For example, for most state employees the contribution
rate is fixed at 6.75 percent. However, over the years the
employer rate has floated. He pointed out that over the years
when the employer rate has decreased, it has largely been
because of investment earnings.
Number 1807
REPRESENTATIVE STEVENS inquired as to why the employee's
contribution hasn't been reduced when the fund has done well.
Although he understood that the employee's contribution is fixed
because it's in statute, it doesn't seem quite fair.
MR. BELL reiterated that the employee rate has been fixed in
statute. At least once, there was an change in the law related
to the employee rate. Therefore, theoretically the legislature
could change the rate for employees by changing the law. One of
the policy issues is in regard to whether the rate, if it goes
down for employees in the good times, should go up in the not so
good times. It has been the employer rate that has floated,
which means that the employer has taken the risk for the bad
times, and thus the employer gets to benefit from the good
times. That has been the situation over the past 20 years.
REPRESENTATIVE STEVENS pointed out that over the years the
employees haven't benefited from the tremendous increases in the
fund, only the employer.
CHAIR COGHILL requested that Mr. Bell speak to the charge from
some witnesses that they, as employees, were promised health
care coverage beyond age 65.
Number 1613
MR. BELL said that is a difficult question. He noted that
currently there is a lawsuit relating to the constitutional
guarantee of the retirement benefit and whether the medical
benefit can be changed. The law provides that medical coverage
is provided at retirement. However, the law also provides that
it becomes [secondary] to Medicare when a person reaches the age
of 65. "I don't know about other promises that've been made,"
he said.
REPRESENTATIVE FATE pointed out that within that discussion of
the promise to state employees is the matter of the co-pay. He
related the question as to whether the promise of coverage was
for the entire health care or for a percentage of the total,
with the co-pay being Medicare Part B.
Number 1522
REPRESENTATIVE STEVENS turned to the notion of reimbursement to
the retiree before taxes, and pointed out that page 3, line 12,
seems to read that the reimbursement would occur without taxes
being taken out.
MR. BELL said that he would have to review the tax code in order
to provide an answer. In response to Chair Coghill's request to
provide this information by next week, Mr. Bell said he would do
his best to review it and provide an answer.
REPRESENTATIVE JAMES remarked that she would like to do more
research on the lawsuit because she was sure that legislation is
cheaper than litigation.
Number 1235
JERRY PATTERSON, President, National Education Association -
Retired, turned to the $274 million fiscal note, which covers
[many of the retirees and all of the active members] currently
working. Therefore, it would cover a 20-year old clerk in PERS
who wouldn't reach age 65 for 45 years and wouldn't receive
their last reimbursement check for 65 years. When the annual
cost of $30.4 million is divided into the $274 million
liability, it appears that [the Division of Retirement &
Benefits] is trying to collect a 60-year payoff in nine years.
Mr. Patterson said that this year's actual cost would be $6.6
million. The accrual of new members reaching age 65 along with
the inflation rate amounts to an additional $600,000 a year for
the first eight to ten years. However, the division still saves
$23.8 million. Each year that savings is less $600,000 due to
the additional payments to those just turning 65. He estimated
that in nine or ten years the system will have [saved] $200
million and collected over another $100 million, and over $300
million will have been set aside due to the collection of $25
million [a year] at the assumed 8.25 percent [interest].
Therefore, total principal and earnings will exceed $600 million
[over the life of the fiscal note], which equates to about $5.3
billion in savings for the system. The ratio of savings to
premiums paid is 8.5 to 1. Therefore, the question is whether
the members should be paying $600 million to save billions over
the life [of the payout].
CHAIR COGHILL interjected that HB 380 would be held over, and
indicated that the committee would like to review the figures
that Mr. Patterson is using.
HB 400-PERMANENT FUND CONTRIBUTION FOR EDUCATION
CHAIR COGHILL announced that the next order of business was
HOUSE BILL NO. 400, "An Act relating to contributions from
permanent fund dividends for municipal school districts and
regional educational attendance areas; and providing for an
effective date."
Number 0595
BILL CHURCH, Staff to Representative Scott Ogan, Alaska State
Legislature, testified on behalf of the Representative Ogan, the
sponsor of HB 400. Mr. Church explained that HB 400 would allow
[recipients] of the permanent fund dividend to contribute [a
portion of] their dividend to their local school district or
regional educational attendance area (REAA). Last year, the
Anchorage Daily News published a letter to the editor from a
Bethel high school junior who expressed the need for more money
for school funding. This letter pointed out that students and
teachers had worked together to accomplish different projects
within the school district. Mr. Church specified that educating
the children of Alaska is the responsibility of all adults in
the state. However, some Alaskans pay nothing locally to
support the education of their youth. This legislation would
allow contributions by a simple check-off box on the permanent
dividend fund application.
MR. CHURCH informed the committee that a legislative attorney
has indicated that contributions made exclusively for a public
purpose are deductible as a charitable contribution on the
federal income tax. Therefore, HB 400 provides a personal and
tax deductible method by which to provide additional financial
support to their local school districts. However, HB 400
doesn't intend for any of these additional monies to count
against the local school district or REAA when the Department of
Education and Early Development (EED) calculates entitlements
under the foundation formula. Mr. Church specified that [the
sponsor] envisioned these contributions being used for
improvements, supplies, or programs for which sufficient funding
hasn't been available. These additional funds shouldn't be used
to pay the salaries and benefits of teachers or any other school
employee.
Number 0389
REPRESENTATIVE JAMES asked whether individuals can already
contribute to [their local school district] without having it
deducted from the permanent fund dividend check.
MR. CHURCH replied that certainly one can give money to their
local school district. However, he said he wasn't sure whether
that would be tax deductible. He indicated that having the
contribution come from the dividend check may not be as painful
a contribution.
REPRESENTATIVE JAMES pointed out that there is a long list of
[groups] that would like to obtain money from the dividend. She
expressed concern with any "playing around" with the earnings of
the permanent dividend fund. Before "playing around" with the
earnings of the permanent dividend fund, there should be a
determination as to what the long-term dividend program will
look like in order to guarantee individuals a dividend.
MR. CHURCH said that HB 400 doesn't really have any impact on
the permanent fund dividend fund itself.
REPRESENTATIVE JAMES said, "It just seems overwhelming to me as
to what might happen if we pass this."
Number 0085
REPRESENTATIVE STEVENS pointed out that communities have caps
with regard to what the community can contribute to education.
He assumed that this cap is in existence in order to provide
fair and equal education throughout the state. However, where
would HB 400 fit in relation to the cap. If the contributions
under HB 400 fall outside of the cap, wouldn't that fly in the
face of equal education throughout the state. If the
contributions under HB 400 fall within the cap, then every
dollar the local community contributes would result in one
dollar less from the state.
MR. CHURCH answered that these contributions are intended to be
outside the foundation formula.
TAPE 02-29, SIDE A
MR. CHURCH continued. He pointed out that [Bethel] is a
community that raises money through gaming, while locally
contributing nothing to education. All the money going towards
educating students [in Bethel] is from the state. This is not
an isolated situation. He deferred to an EED representative
with regard to the number of districts that aren't receiving
local funding.
Number 0184
REPRESENTATIVE FATE turned to the fiscal note, which specifies a
cost of $17 million. He asked if that cost would be offset by
the savings to the state in those areas where all the funding in
education is provided by the state.
MR. CHURCH reiterated that these monies would be outside the
foundation formula and thus wouldn't be considered. Therefore,
there wouldn't be any "offsetting savings."
EDDY JEANS, Manager, School Finance and Facilities Section,
Education Support Services, Department of Education and Early
Development, testified in opposition to HB 400. He explained
that these funds would be outside the foundation formula and
would be operational, discretionary, funds for the school
districts. Furthermore, HB 400 would run the risk of
jeopardizing the state's equalization test in the foundation
program, which allows the state to consider $50 million in
federal aide in the distribution formula. Mr. Jeans noted that
no one knows how many people will take advantage of this program
and how much money will go into what community. He echoed
Representative James's earlier statement that individuals can
already make personal contributions to their local schools. He
characterized such personal contributions as minimal. Mr. Jeans
emphasized that EED doesn't oppose increased funding for
schools; "it's the mechanism in which the schools get these
additional funds." "We believe that the appropriate way would
be to put more money into the foundation program statewide," he
said.
Number 0513
REPRESENTATIVE JAMES asked if there are school districts in
Alaska that don't receive PL874 funds [Title VIII - impact aid
funds].
MR. JEANS answered that there are four or five such districts.
He explained that PL874 funds are in lieu of property taxes
[for] federal lands that are tax exempt. The federal government
makes the property tax payment to the education agencies on
behalf of the people who reside on those federal properties. In
further response to Representative James, Mr. Jeans specified
that those school districts that don't receive federal impact
aide, PL874 funds, are small first class cities that are making
a local contribution. Every school district has some
contribution that is other than state aide.
Number 0635
REPRESENTATIVE WILSON asked whether money raised for sports has
to be counted [in the cap].
MR. JEANS specified that typically those funds are outside the
cap, although for some school districts such funds are counted
as local revenue and thus show up in the operating fund from
where it's transferred to student activities. In further
response to Representative Wilson, Mr. Jeans explained that
funds raised for specific programs [that are outside] the
operating program will be [funneled] to that specific program.
However, a contribution as suggested in HB 400 doesn't target a
specific program and thus the funds are discretionary.
Therefore, the district has no choice but to place those funds
in the operating fund until the district determines how to spend
those funds.
Number 0748
REPRESENTATIVE STEVENS requested that Mr. Jeans comment on how
HB 400 could theoretically impact the cap.
MR. JEANS said that he didn't view [the funds raised by] HB 400
as a local contribution that would be counted against the cap.
This legislation would merely provide additional revenue,
contributed as other local revenue, to the school operating fund
and thus would be measured in the equity test. Currently,
school districts generate some local revenues that aren't tax
revenues; those go into the operating fund and are counted in
the federal disparity test. Therefore, the 2 percent cushion
allows for those variances across the state. However, with a
program as proposed in HB 400 there is no knowledge as to how
much money will go into any community. That influx of revenue
could cause the state to fail the disparity test; and therefore
the $50 million [in federal funds] couldn't be counted in the
state's funding formula.
MR. JEANS, in response to Chair Coghill, informed the committee
that the equity test is run "after the fact." "If we fail the
disparity [test], then this legislature cannot consider those
federal dollars in the upcoming year, which will leave a $50
million gap that would have to be filled some place else," he
specified.
CHAIR COGHILL asked, "Is it an all or nothing [situation]?" Or,
could one say that if HB 400 brings in $50 million, that it
[replaces] the $50 million [lost in federal dollars].
MR. JEANS reiterated that if HB 400 brings in $50 million and
causes the state to fail the disparity test, then the federal
dollars can't be counted. He highlighted that this would lead
to [questions] regarding equity between school districts, which
would result in [litigation]. He explained that EED uses the
federal disparity test as a measure of equity between school
districts across the state, which helps keep [the state] out of
court.
CHAIR COGHILL said, "Without regard to local input?"
MR. JEANS clarified that it does consider local input, which is
where the local cap comes into play. Therefore, it's important
that the legislature provide revenue to school districts via the
foundation program because that money has been measured and
counted in a particular way so that [the state] will always meet
the federal equity test.
Number 1000
REPRESENTATIVE JAMES recalled that last year this topic came up
in regard to Tok, which was feeling the pressure to create a
local government that it didn't want. The argument for making
Tok create a local government was that Tok wasn't paying
anything for its schools. [Residents of Tok] approached
Representative James and told her they were willing to have part
of their permanent fund go into the [foundation] formula as the
community's local participation. However, there was a problem
with regard to not being able to get that money [into the
foundation formula]. She inquired as to the problem.
MR. JEANS recalled the situation, and characterized the problem
as a tracking issue with regard to what money goes to what
school district. Furthermore, the foundation program would have
to be amended so that there would be an offset in state revenue
equal to the amount of contributions through the aforementioned
mechanism. Mr. Jeans said, "If that was the way that this bill
was written, I don't think I would be here opposing the bill
because then that money is going into the pot of equalized
revenues in which the state measures." However, additional
revenue outside the formula causes equity problems.
CHAIR COGHILL suggested that the [equity] issue be discussed
with the sponsor.
REPRESENTATIVE JAMES remarked that she found it problematic to
provide carte blanche authority across the state and then have
to specify which school districts [the money is going].
Although she recognized the [proposal in HB 400] to be
complicated, she noted her interest in the proposal in order to
determine if there is a way to do it.
MR. JEANS said that although there are ways to do it, he
cautioned the committee with regard to impact aid and whether it
should be considered a local contribution. Mr. Jeans said that
the simplest way to obtain the local contribution is through the
incorporation of the areas in order that they may make a local
contribution based on property values. Mr. Jeans explained that
if the money was to go into the foundation program and offset
state aide and thus was part of the overall state equalization
program, then he would have a different response to HB 400.
CHAIR COGHILL announced that HB 400 would be held. He also
announced that he would approach the sponsor and discuss whether
there is interest in moving in any other direction than what is
currently in the legislation.
ADJOURNMENT
There being no further business before the committee, the House
State Affairs Standing Committee meeting was adjourned at 9:58
a.m.
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