01/30/2006 09:39 AM House W&M
| Audio | Topic |
|---|---|
| Start | |
| HB374 | |
| HB375 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
January 30, 2006
9:39 a.m.
MEMBERS PRESENT
Representative Bruce Weyhrauch, Chair
Representative Norman Rokeberg
Representative Ralph Samuels
Representative Paul Seaton
Representative Peggy Wilson
Representative Max Gruenberg
Representative Carl Moses
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Kurt Olson
COMMITTEE CALENDAR
HOUSE BILL NO. 374
"An Act relating to establishment of a retirement benefit
liability account in the Department of Revenue and redirecting
deposit of annual dividends of the Alaska Housing Finance
Corporation to that account; and providing for an effective
date."
- HEARD AND HELD
HOUSE BILL NO. 375
"An Act relating to the retirement benefit liability account and
appropriations from that account; relating to deposits of
certain income earned on money received as a result of State v.
Amerada Hess, et al., 1JU-77-847 Civ. (Superior Court, First
Judicial District); and providing for an effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 374
SHORT TITLE: RETIREMENT BENEFIT LIABILITY ACCT/AHFC
SPONSOR(S): WAYS & MEANS
01/17/06 (H) READ THE FIRST TIME - REFERRALS
01/17/06 (H) W&M, STA, FIN
01/20/06 (H) W&M AT 9:00 AM CAPITOL 106
01/20/06 (H) Heard & Held
01/20/06 (H) MINUTE(W&M)
01/25/06 (H) W&M AT 9:00 AM CAPITOL 106
01/25/06 (H) Heard & Held
01/25/06 (H) MINUTE(W&M)
01/27/06 (H) W&M AT 9:00 AM CAPITOL 106
01/27/06 (H) Heard & Held
01/27/06 (H) MINUTE(W&M)
01/30/06 (H) W&M AT 9:30 AM CAPITOL 106
BILL: HB 375
SHORT TITLE: RETIREMENT BENEFIT LIABILITY ACCT/PF
SPONSOR(S): WAYS & MEANS
01/17/06 (H) READ THE FIRST TIME - REFERRALS
01/17/06 (H) W&M, STA, FIN
01/20/06 (H) W&M AT 9:00 AM CAPITOL 106
01/20/06 (H) Heard & Held
01/20/06 (H) MINUTE(W&M)
01/25/06 (H) W&M AT 9:00 AM CAPITOL 106
01/25/06 (H) Heard & Held
01/25/06 (H) MINUTE(W&M)
01/27/06 (H) W&M AT 9:00 AM CAPITOL 106
01/27/06 (H) Heard & Held
01/27/06 (H) MINUTE(W&M)
01/30/06 (H) W&M AT 9:30 AM CAPITOL 106
WITNESS REGISTER
TOM BOUTIN, Deputy Commissioner
Treasury Division
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Provided information on DOR's fiscal note
for HB 374; provided information on HB 375.
KEVIN BROOKS, Deputy Commissioner
Department of Administration (DOA)
Juneau, Alaska
POSITION STATEMENT: Provided information on DOA's fiscal note
for HB 374 and HB 375.
DANIEL FAUSKE, Chief Executive Officer/Executive Director
Alaska Housing Finance Corporation (AHFC)
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Offered his opinion of the effect HB 375
would have on AHFC in appropriating corporation funds to address
the ongoing unfunded liability of the state retirement system.
JOE DUBLER, Chief Financial Officer and Finance Director
Alaska Housing Finance Corporation (AHFC)
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Provided information on the financial
impact HB 375 would have on AHFC.
KEVIN RITCHIE, Executive Director
Alaska Municipal League (AML)
Juneau, Alaska
POSITION STATEMENT: Answered questions on the effect HB 374 and
HB 375 might have on municipalities.
ACTION NARRATIVE
CHAIR BRUCE WEYHRAUCH called the House Special Committee on Ways
and Means meeting to order at 9:39:20 AM. Representatives
Weyhrauch, Gruenberg, Moses, Samuels, Seaton, and Wilson were
present at the call to order. Representative Rokeberg arrived
as the meeting was in progress. Representative Olson was also
in attendance.
HB 374-RETIREMENT BENEFIT LIABILITY ACCT/AHFC
[Contains brief discussion of HB 375.]
9:39:29 AM
CHAIR WEYHRAUCH announced that the first order of business would
be HOUSE BILL NO. 374, "An Act relating to establishment of a
retirement benefit liability account in the Department of
Revenue and redirecting deposit of annual dividends of the
Alaska Housing Finance Corporation to that account; and
providing for an effective date."
CHAIR WEYHRAUCH relayed that both HB 374 and HB 375 were drafted
to set up accounts, not funds, which would provide some revenue
to address the unfunded liability of the Public Employees'
Retirement System (PERS) and the Teachers' Retirement System
(TRS). He explained that in response to comments from the
Alaska Housing Finance Corporation (AHFC), a proposed committee
substitute (CS) for HB 374, Version 24-LS1453/Y, Wayne, 1/24/06,
was drafted.
9:40:56 AM
REPRESENTATIVE WILSON moved to adopt the proposed CS for HB 374,
Version 24-LS1453/Y, Wayne, 1/24/06, as the working document.
There being no objection, Version Y was before the committee.
9:41:11 AM
CHAIR WEYHRAUCH requested an explanation of the fiscal effect of
[Version Y] from the Department of Revenue (DOR) and Department
of Administration (DOA).
9:44:55 AM
TOM BOUTIN, Deputy Commissioner, Treasury Division, Department
of Revenue (DOR), said that the [original] fiscal note was
drafted according to the estimated amounts of revenue forecasted
by the Alaska Housing Finance Corporation (AHFC). He explained
that the fund, as established under HB 374, would receive $80
million in [fiscal year (FY)] 07, $40 million annually
thereafter, and would not entail any management charges since
the money would "sit there for a very short time" before being
invested in the general fund (GF). He commented that since
[Version Y] would modify this, a new fiscal note would need to
be prepared.
MR. BOUTIN, in response to a question by Chair Weyhrauch as to
whether the administration supports the bill, said DOR takes no
position on the "choices that the legislature has to make about
where money goes."
9:46:20 AM
CHAIR WEYHRAUCH said that before addressing the issue of local
communities negatively affected by retirement debt, sources of
recurring revenue have to be identified. He commented that the
only ones he was aware of in the state were from investment
income, AHFC, Amerada Hess, and North Slope oil production
revenue. He said that the recurring revenue from AHFC and
Amerada Hess were the basis in forming HB 374 and HB 375.
MR. BOUTIN, in response to Chair Weyhrauch's request for
feedback on applying the AHFC dividends toward the unfunded
liability of the retirement systems, said "it's a choice that
the legislature gets to make as to ways to allocate that."
9:48:00 AM
REPRESENTATIVE GRUENBERG recalled previous discussion on
interest earnings and said he assumed that "this large amount of
money" would earn a substantial amount of interest. He asked
Mr. Boutin how much it would earn in one quarter.
MR. BOUTIN projected the GF will earn an annual rate of 3.7
percent, which would mean that earnings on the $40 million would
be $370,000 for one quarter. In further response to
Representative Gruenberg, Mr. Boutin expressed his belief that
the funds would accumulate in the [retirement benefit liability]
account prior to being appropriated and that the appropriations
were meant to pay down the annual contributions, not the
unfunded liability.
9:50:00 AM
CHAIR WEYHRAUCH, in response to a question by Representative
Wilson, confirmed that the funds do not go directly toward
paying the retirement liability but would stay in the GF until
each legislature determined where to appropriate the funds. He
explained that it is not a dedicated fund, but instead goes into
a special named account similar to the one for public education.
He said the design of the bill is to accomplish two things: to
provide a stream of income into an account that's available for
appropriation to address the retirement and benefit liabilities,
and to identify the recurring sources of revenue to that account
so the legislature would know the amount available for
appropriation.
9:51:48 AM
REPRESENTATIVE SEATON referred to page 3, Section 4, of Version
Y and opined that the bill is structured such that
municipalities and school districts can determine whether or not
to use the appropriated funds toward reducing their retirement
debt or for other purposes. He asked if DOR thought it's
possible to restructure the bill so that the payment is made
directly into the retirement funds on behalf of those
municipalities and school districts.
9:53:04 AM
CHAIR WEYHRAUCH explained that when the drafter came back with
the bill, "it had legislative intent language ... that would
require [municipalities and school districts] to pay it directly
to their unfunded liability." He opined that this legislative
intent language was "awkward" for a legislative measure as
opposed to a budget measure, and therefore was removed.
9:53:48 AM
REPRESENTATIVE SEATON noted his agreement with Chair Weyhrauch
regarding not having intent language in the bill. However, he
asked if it is possible for DOR to structure the intent into the
bill in order to ensure the contributions go toward paying the
unfunded liability of political subdivisions.
9:54:29 AM
CHAIR WEYHRAUCH explained that because the bill cannot bind
future legislatures and because it would have to be an
appropriation through the budget, specific language regarding
where funds are to be applied "was held more or less in abeyance
until the budget bill comes up."
9:55:02 AM
MR. BOUTIN related that [DOR] discussed how it would make more
sense to get the money working at the 8.25 percent assumed rate
of return as soon as possible. This would happen, he said, if
the legislature appropriated the money directly to the employer
retirement funds where it could immediately begin earning at the
higher rate, as opposed to having the funds distributed directly
to the employer, earning a presumed lower rate.
CHAIR WEYHRAUCH reminded the committee that "the intent of these
two measures before us is to find sources of revenue to pay for
this debt or liability as well as the current costs."
9:56:47 AM
MR. BOUTIN, in response to Chair Weyhrauch's question regarding
"lag time," said that payment of funds directly to the
[employers] versus direct payment to the [employers'] retirement
[debt] could entail a six-month lag time. He suggested that
Melanie Millhorn, Director, Health Benefits Section, Division of
Retirement and Benefits, DOA, would be able to provide
clarification as to if and when communities can receive credit
for any earned interest.
9:57:34 AM
REPRESENTATIVE GRUENBERG, referring to page 2, line 28 of
Version Y, opined that the wording is specific in directing
"employer contributions to pay past service liabilities";
however, the language in the following line, "and for other
purposes" is not specific enough. He asked whether there was
any way to short-circuit the entire process [of appropriating
funds] by designating a certain amount of AHFC funds to directly
pay the debt.
CHAIR WEYHRAUCH opined that Representative Gruenberg's
suggestion "broadened AHFC's mission beyond what it really
should be."
REPRESENTATIVE GRUENBERG said it would only broaden [the AHFC's
mission] to the extent [the legislature] allows. He questioned
the possibility of including a sunset for the bill should, at
some future point in time, the liability be paid in full.
10:00:16 AM
REPRESENTATIVE ROKEBERG asked "What the historic dividend has
been in the use of the dividend."
MR. BOUTIN deferred to AHFC representatives.
10:01:33 AM
KEVIN BROOKS, Deputy Commissioner, Department of Administration
(DOA), said the department has submitted a zero fiscal note,
could administer whatever system is established, and regardless
of how payments are set up, there would be little to no fiscal
impact as far as the mechanics. Mr. Brooks suggested that the
more relevant question might be how much of an impact the
infusion of $80 million or $40 million might have on the system
in the first year. He explained that $100 million is the amount
needed to cover the 5 percent increase and that "as long as
we're building up to that actuarially determined rate, [the
state is] paying down that unfunded liability as [it] increases
that rate."
CHAIR WEYHRAUCH asked Mr. Brooks what the general policy
reaction is to establishing a retirement benefit liability
account.
MR. BROOKS replied that there has only been preliminary
discussion with the governor's office regarding the [AHFC]
account, and he did not know the intent for the expenditure of
those funds in the governor's budget.
10:03:38 AM
CHAIR WEYHRAUCH reminded the committee that [Version Y] does not
dedicate funds; it simply establishes the account mechanisms.
10:03:47 AM
REPRESENTATIVE ROKEBERG, in referencing Mr. Brooks' mention of
the annualized increase of $100 million, sought confirmation
that this level actually increases annually.
MR. BROOKS explained that the rate is "ramped up" 5 percent per
year until the required rate is met, which he believed would
occur by 2008 for PERS and 2009 for TRS.
10:04:33 AM
DANIEL FAUSKE, Chief Executive Officer/Executive Director,
Alaska Housing Finance Corporation (AHFC), Department of Revenue
(DOR), said he was not "excited in terms of getting AHFC
involved on an ongoing basis to fund this liability." He
highlighted that due to legislation passed a couple years ago,
AHFC is currently required to pay a percentage of "net income" -
a term which, because of changes in accounting standards by the
Governmental Accounting Standards Board Statement No. 34 (GASB
34) and the [Federal Accounting Standards] FAS, is now referred
to as "change in net assets." Under the former standard, he
explained, "there would be a dividend of $40 million coming to
the state"; however, if [HB 361] passes, "the dividend [to the
state] will be $81.5 million." He listed the following AHFC
expenses totaling $30.9 million: debt service obligations on
older bonds issued on behalf of the state, public housing bonds,
and bond payments for University of Alaska, Anchorage (UAA)
dormitories. This expense, he added, with the $31.2 million
expense of addressing capital requests, would leave AHFC a
balance of $19.3 million to meet other state funding needs.
MR. FAUSKE said the concern [AHFC] has with adding to the list
of those seeking AHFC funds, particularly with the possibility
of having to fund the large recurring liability of the state's
retirement system, is the difficulty in explaining to Wall
Street how long AHFC will be required to pay into this amount,
"in the event that this amount grows and [AHFC] becomes ...
embroiled into a debate as to how much money is left over for
AHFC's capital requirements ...." He referred to a second group
that would be affected as well, which would consist of AHFC
constituencies heavily involved in the housing program:
homebuilders, realtors, mortgage bankers, senior citizen groups,
veterans, and others. He said, as the housing finance
corporation for the state, there are requirements and statutory
guidelines AHFC must follow for those groups it serves.
MR. FAUSKE expressed his belief that the creation of the
[retirement benefit liability] account causes a lot of problems
for AHFC, and therefore he said he is not certain it will
actually solve [the unfunded liability]. He suggested that
perhaps inclusion of a timeline which determines when the debt
will actually be paid in full [might be beneficial]; however, he
said he sees this [debt] as ongoing.
MR. FAUSKE informed the committee that his intent is to keep the
corporation focused in the direction that it has been. He said
that over the last 11 years, AHFC has developed and generated
$1.3 billion in cash for the state and has "been a good partner
for the state." He suggested that the state, in addressing its
unfunded retirement liability, "look at dead issuance or other
obligations to help pay for their capital projects" and invest
any residual cash in this type of fund to "free up some capital
from the state's perspective."
10:09:25 AM
REPRESENTATIVE ROKEBERG referred to page 2, lines 6-7, of
Version Y:
(1) the lesser of $103,000,000 or 75 percent of
the adjusted change in net assets [NET INCOME] of the
corporation for the base fiscal year;
REPRESENTATIVE ROKEBERG inquired as to what the current net
asset base is for AHFC and the impact that would that have on
AHFC's rating standards and the viability of the corporation.
10:10:07 AM
MR. FAUSKE replied that the actual adjusted change in net
assets, formerly referred to as "net income," is approximately
$86 million. He explained that 95 percent of this amount, which
comes to $81,506,000, is "what's being freed up for discussions
with the state, which was submitted in our capital budget."
10:11:07 AM
JOE DUBLER, Chief Financial Officer and Finance Director, Alaska
Housing Finance Corporation (AHFC), Department of Revenue (DOR),
in response to Representative Rokeberg's question, said that
GASB 34 changed the way governmental entities have to report
their financial statements. For example, balance sheets are now
referred to as a "statement of net assets" and income statements
are now referred to as a "change in net assets." In addition to
these title changes, GASB 34 affected the way AHFC reported some
items on its financial statements which is what led to the
adjusted change in net assets that AHFC is proposing under HB
361.
10:11:45 AM
REPRESENTATIVE ROKEBERG asked if this was at odds with the
[Generally Accepted Accounting Principles ("GAAP")] and sought
clarification as to the difference between a GAAP net asset and
a GASB net asset.
10:11:59 AM
MR. DUBLER explained that prior to GASB 34, "net assets" were
equivalent to an equity account showing both assets and
liabilities. However, GASB 34 changes the equity part of a
balance sheet "to what's called 'net assets' and on the income
statement they've changed it to 'a change in net assets' so all
it shows is your revenues and your expenditures and the bottom
line is your change in net assets."
MR. DUBLER, in further response to Representative Rokeberg,
explained that every time the GASB and Financial Accounting
Standards Board (FASB) "puts out a new pronouncement, that
becomes the new GAAP." He clarified that the GASB only applies
to governmental entities and certain nonprofits. For-profit
entities, however, follow FASB guidelines and may use different
accounting terms, he said.
10:13:32 AM
MR. FAUSKE pointed out that prior to GASB 34, the amount of
money made available to the state [through AHFC] would have been
$40 million which, with the following changes in GASB, was
determined to be an inappropriate amount and resulted in AHFC
making changes and submitting [HB 361] to ensure the dividend to
the state would be $81.5 million. In response to a question by
Chair Weyhrauch, he said he believes the fiscal note prepared by
DOR reflects the current situation and not the GASB-introduced
changes.
10:14:35 AM
MR. DUBLER explained that for fiscal year FY 07, AHFC "went
ahead with the $81 million number because that's what the
governor had proposed in his budget and we're counting on that
passing, but for future years, we didn't want to be presumptuous
and assume that the legislation passed."
10:15:04 AM
REPRESENTATIVE SEATON indicated that Version Y does include the
adjusted change in net assets on page 2. He then asked,
referencing page 5, subparagraph (A), whether these are
recommendations made by AHFC or are those are recommendations
made by AHFC or merely conformances to budgetary contributions.
He further asked if the amount determined at the 95 percent
change in net assets as designated in Version Y, would "somehow
impact your ability to invest in the requirements that AHFC has
for other capital differently than if [funds are made] available
in the governor's budget?"
10:17:00 AM
MR. DUBLER replied that the current statutes are reflected in
Version Y with any modifications underlined. He then directed
the committee's attention to page 3, line 20, where it addresses
the "TRANSITION: PHASE-IN OF AMOUNT OF DIVIDEND." He said that
the phase-in amount was designed to "ease off of the $103
million the corporation has typically made available," and
therefore is set at 95 percent of the corporation's adjusted
change in net assets for FY 07, page 5, line 1, and then 85
percent for FY 08, page 5, line 15. He explained that once the
transition language has run its course, "we get into the regular
dividend of 75 percent [page 2, line 7]. With the current
proposal of $81 million, he said that approximately $31 million
is applied to debt service on prior state capital project bonds
and approximately $31 million to the corporation's capital
budget, with a remaining $19 million available for appropriation
by the legislature.
10:18:44 AM
REPRESENTATIVE SEATON asked if he was correct in his
understanding that in identifying what would be available for
the legislature to appropriate, [Version Y] identifies the full
amount which would then result in having to identify another
appropriation source to fund [AHFC's] $31 million for capital
[expenses] and $31 million for past debts.
MR. DUBLER replied, "that's exactly the corporation's concern
[as] we end up in line behind PERS and TRS to fund our own
capital budget ... [which is] partially addressed by the
modifications [made to HB 374 by Version Y] today where on page
1, lines 10-12, we are deducting amounts appropriated for
capital projects before the amount that's determined to go to
the retirement benefit liability account."
MR. FAUSKE confirmed Representative Seaton's understanding that
the "only real difference in this bill" deals with how the state
will appropriate the $19 million - whether to the retirement
account or to any other purpose the legislature chooses.
10:20:38 AM
REPRESENTATIVE GRUENBERG observed, in referring to both Section
1 and Section 2, lines 18-21, on page 2, that whereas the
current AHFC dividend is the lesser of $103 million or 75
percent of the corporation's "net income," in Version Y the 75
percent would be applied to the corporation's "adjusted change
in net assets." He asked if he was correct in interpreting this
change [in accounting terms] as possibly resulting in nothing
more than a paper change, not reflected in any real money, like
income. "Isn't that much more risky than basing it on income,"
he asked.
MR. DUBLER explained that the changes embodied in Version Y were
made to conform [HB 374] to HB 361 and the required changes in
GASB 34.
10:24:13 AM
REPRESENTATIVE GRUENBERG, in reviewing AS 18.56.089(d), said he
did not see the term "net assets" defined anywhere in the
statute. He asked, "Is it defined in state law or could this
just change like the wind as some federal regulation changes
based on things that occur on Wall Street or Washington or some
other place on the planet?"
MR. DUBLER expressed his hope that 10 years from now people
would recognize "change in net assets" as the new term for "net
income" and mentioned as well that the definition for "adjusted
change in net assets" is included in HB 361. Due to the
financial recording requirements of GASB 34, he said that there
are now a few expenditures the corporation must account for on
the statement for "changes in net assets" - amounts which reduce
the corporation's "net income" to a level that did not exist
prior to GASB 34 as these expenditures were formerly accounted
for on balance sheets. Therefore, in order to conform to GASB
34, he explained, these expenses were added back in and thus
increase the corporation's net income to make the dividend what
it would have been had those changes not occurred.
10:26:00 AM
Mr. FAUSKE, in response to Representative Rokeberg's question
regarding available funds, related that $81.5 million is
available, $30.9 million is committed to debt service, and $31.2
million [is necessary] for the AHFC capital budget, which funds
the teacher housing loan program, the supplemental program, the
weatherization program, the federal and competitive grants, and
the energy efficiency program. "Then you have remaining $19.332
million that is generally held out, and the legislature
appropriates that where it is necessary," he said.
Historically, that entire amount has helped fund the Village
Safe Water Program and has been as high as $25 million. Mr.
Fauske, per the request of Representative Rokeberg, said he
would provide the committee with a breakdown of these expenses.
10:27:49 AM
REPRESENTATIVE ROKEBERG inquired as to the approximate impact on
the state domestic product, "which you think may be in jeopardy
because of this bill."
MR. FAUSKE replied that, in total, [AHFC] estimates that the
housing industry represents roughly 25 percent of the [gross
domestic product] (GDP) of the state.
CHAIR WEYHRAUCH clarified that Version Y was drafted with the
intent to only address those funds available after appropriation
of the amounts needed for capital projects and to not interfere
with AHFC's mission.
10:29:17 AM
REPRESENTATIVE SEATON made a motion to adopt [Amendment 1],
labeled 24-LS1453/Y.1, Wayne, 1/24/06, which read:
Page 3, line 12, following "section":
Insert "and reducing the calculation by the
amount of the political subdivision's unpaid past
service cost for that fiscal year for each elected
official eligible for the plan but not paid an hourly
wage or a salary based on an hourly wage, unless the
contribution for that official during that fiscal year
by the political subdivision meets or exceeds the
contribution required of a participating employer for
an employee who was paid the average salary of all
employees in the retirement plan established under
AS 39.35.095 - 39.35.680"
CHAIR WEYHRAUCH objected for discussion purposes.
10:29:28 AM
REPRESENTATIVE SEATON explained that [Amendment 1] proposes to
modify Section 4, subparagraph (A), by reducing the state
contribution by a proportionate amount to those municipalities
or school districts that opted for "voluntary, unfunded
liability" by having elected officials eligible for PERS but
"without [the] adequate contributions to allow for payment of
those over time." He explained that should these political
subdivisions decide to not incur an unfunded liability and
"contribute into the retirement system the amount of the average
wage, then that wouldn't be subtracted" [from the state
contribution].
10:31:30 AM
CHAIR WEYHRAUCH, responding to Representative Gruenberg's
request to hear testimony from those entities addressed by
Amendment 1, said that the amendment would not be acted upon at
this time.
10:32:16 AM
MR. FAUSKE, in response to a request from Chair Weyhrauch to
learn more about the growing concern of interest groups on "what
this bill may do," said that, in reference to the amount of
money flowing from AHFC to the state, he could provide the
committee with information as to the kinds of questions
continually addressed to the corporation by Wall Street.
[HB 374, Version Y, was held over. Amendment 1 was left
pending.]
10:33:25 AM
The committee took a brief at-ease at 10:33 a.m.
HB 375-RETIREMENT BENEFIT LIABILITY ACCT/PF
[Contains discussion of HB 374.]
10:33:56 AM
CHAIR WEYHRAUCH announced that the final order of business would
be HOUSE BILL NO. 375, "An Act relating to the retirement
benefit liability account and appropriations from that account;
relating to deposits of certain income earned on money received
as a result of State v. Amerada Hess, et al., 1JU-77-847 Civ.
(Superior Court, First Judicial District); and providing for an
effective date."
10:34:38 AM
TOM BOUTIN, Deputy Commissioner, Treasury Division, Department
of Revenue (DOR), said that in regard to the fiscal note, the
Permanent Fund Corporation estimates earnings of the Amerada
Hess [Corporation] account to be $27.6 million annually, of
which 50 percent of that would be $13.8 million. He explained
that in holding that amount for one quarter at the 3.7 percent
assumed rate on the general fund, would result in $13.9 million
being available to help employers meet their contribution amount
for the Public Employees' Retirement Account (PERS) and
Teachers' Retirement Account (TRS). He said that to his
knowledge, DOR does not have a position on this.
10:35:28 AM
REPRESENTATIVE ROKEBERG asked whether there would be any
difficulty in using Amerada Hess funds by fiscal year 2007 (FY
07) for the purposes stated in [HB 375] or for any other
purpose. He also asked whether there were any prior commitments
or timing issues.
MR. BOUTIN replied that he couldn't remember the specifics of
prior year deliberations on the use of Amerada Hess funds to pay
debt service, and opined that the funds should be available by
FY 07 for whatever purpose intended by the state.
10:36:31 AM
MR. BOUTIN, responding to questions by Representative Seaton,
said that "the idea that we could be a bit more efficient by
appropriating the money directly into the retirement funds and
thereby putting them to work sooner, would apply equally [to HB
374 and HB 375]." He said Chair Weyhrauch was correct in his
understanding that $13.9 million is the amount available for the
[retirement benefit liability account] as specified in [HB 375],
and explained that there is more earnings volatility in the
Amerada Hess fund - "invested at the rate of the permanent fund"
- which might entail higher earnings some years and no earnings
other years. He opined that it might make sense to calculate a
percent of market value for Amerada Hess funds just as it does
for the permanent fund; however, the mechanics of doing so while
the Amerada Hess funds are invested with the permanent fund
requires further consideration. He said he would report back to
the committee with his findings.
10:39:57 AM
MR. BOUTIN, in response to Representative Rokeberg, related his
belief that the current corpus of the Amerada Hess subaccount is
$425 million and that the estimated Amerada Hess earnings "of
the $27.6 million annual" might have been calculated on a rate
of 6.7 percent. He explained to the committee that regardless
of the applicable interest rate, [the bill and accompanying
fiscal note specify that] 50 percent of that rate will go to the
[retirement benefit liability account].
10:41:21 AM
CHAIR WEYHRAUCH reminded the committee that the purpose of the
bill is "to not take the entire interest thrown off by that
amount in recognition that there is going to be political
requests for other uses of that fund."
10:41:34 AM
REPRESENTATIVE WILSON, in referring to page 2, lines 13-14,
sought confirmation in her understanding as to where Amerada
Hess earnings are appropriated and by what amounts. She asked
whether the "earnings are just there and growing and not used
for anything right now."
MR. BOUTIN replied that 50 percent of the $27.6 million earnings
would be available for appropriation to the retirement benefit
liability account as specified in DOR's fiscal note.
REPRESENTATIVE SEATON provided further clarification to
Representative Wilson by explaining that [HB 375] specifies the
other 50 percent of [the $27.6 million] earnings would be
deposited in the Alaska capital income fund, an existing
account, established by prior year legislation, and to which 100
percent of the earnings are currently appropriated.
10:46:02 AM
MR. BOUTIN, in response to a question by Representative
Rokeberg, clarified that the 6.7 percent rate of return on the
$27 million was "just my recollection," and was not specified in
the fiscal note. He confirmed that he was using Alaska
Permanent Fund Corporation projections.
10:46:58 AM
KEVIN BROOKS, Deputy Commissioner, Department of Administration
(DOA), announced that since HB 374 and HB 375 are constructed
largely the same, the department submitted another zero fiscal
note for the mechanics of allocating funds [for HB 375] and said
that his comments on [HB 374] would basically apply to [HB 375]
as well.
10:47:53 AM
CHAIR WEYHRAUCH asked if there was anyone present wishing to
testify on either HB 374 or HB 375. He explained that there was
an amendment offered to HB 374 that might affect the interests
of [PERS and TRS employers].
10:48:18 AM
KEVIN RITCHIE, Executive Director, Alaska Municipal League
(AML), expressed his thanks to the committee for its work on
[legislation addressing the unfunded liability]. He commented
that there are three community dividend bills that also use
Amerada Hess as a primary funding source and "that's obviously a
conflict, ... we'll work through that ...."
10:49:11 AM
REPRESENTATIVE SEATON, referring to the purpose of the bill,
wondered if those Mr. Ritchie represents would have a problem
with contributions being made [directly] to [employers'] past
service liability accounts "instead of giving money to them
directly and then having them return it over time back through
their contributions."
10:50:04 AM
MR. RITCHIE replied that he has not had the opportunity to speak
with all the finance officers but "supposed it's possible that
thoughts might vary on that. However, all those finance
officers I've talked to on our legislative committee don't see
any reason why you would have to put in that extra step in
passing money to municipalities and passing it back." He opined
that the real issue is reducing the past service liability.
10:50:36 AM
CHAIR WEYHRAUCH announced that there is a committee substitute
for HB 375 which would be distributed to committee members for
the following meeting.
[HB 375 was held over.]
10:50:45 AM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
10:50 a.m.
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