02/16/2007 03:35 PM House W&M
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| Start | |
| HB13 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
February 16, 2007
3:35 p.m.
MEMBERS PRESENT
Representative Mike Hawker, Chair
Representative Anna Fairclough, Vice Chair (via teleconference))
Representative Bob Roses
Representative Paul Seaton
Representative Peggy Wilson
Representative Max Gruenberg
MEMBERS ABSENT
Representative Sharon Cissna
COMMITTEE CALENDAR
HOUSE BILL NO. 13
"An Act relating to prepayments of accrued actuarial liabilities
of government retirement systems; relating to the Alaska
Municipal Bond Bank Authority; permitting the Alaska Municipal
Bond Bank Authority or a subsidiary of the authority to assist
state and municipal governmental employers by issuing bonds,
notes, commercial paper, or other obligations to enable the
governmental employers to prepay all or a portion of the
governmental employers' shares of the unfunded accrued actuarial
liabilities of retirement systems; authorizing a governmental
employer to issue obligations to prepay all or a portion of the
governmental employer's shares of the unfunded accrued actuarial
liabilities of retirement systems and to enter into a lease or
other contractual agreement with a trustee or the Alaska
Municipal Bond Bank Authority or a subsidiary of the authority
in connection with the issuance of obligations for that purpose,
and relating to those obligations; and providing for an
effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 13
SHORT TITLE: RETIREMENT SYSTEM LIABILITY/BONDS
SPONSOR(s): REPRESENTATIVE(s) HAWKER
01/16/07 (H) PREFILE RELEASED 1/5/07
01/16/07 (H) READ THE FIRST TIME - REFERRALS
01/16/07 (H) W&M, STA, FIN
02/14/07 (H) W&M AT 3:30 PM HOUSE FINANCE 519
02/14/07 (H) Heard & Held
02/14/07 (H) MINUTE(W&M)
02/16/07 (H) W&M AT 3:30 PM HOUSE FINANCE 519
WITNESS REGISTER
No witnesses to record
ACTION NARRATIVE
CHAIR MIKE HAWKER called the House Special Committee on Ways and
Means meeting to order at 3:35:10 PM. Present at the call to
order were Representatives Hawker, Wilson, Gruenberg, Roses,
Seaton, and Fairclough (via teleconference).
HB 13-RETIREMENT SYSTEM LIABILITY/BONDS
[Contains brief mention of HB12.]
3:37:28 PM
CHAIR HAWKER announced that the only order of business would be
HOUSE BILL NO. 13, "An Act relating to prepayments of accrued
actuarial liabilities of government retirement systems; relating
to the Alaska Municipal Bond Bank Authority; permitting the
Alaska Municipal Bond Bank Authority or a subsidiary of the
authority to assist state and municipal governmental employers
by issuing bonds, notes, commercial paper, or other obligations
to enable the governmental employers to prepay all or a portion
of the governmental employers' shares of the unfunded accrued
actuarial liabilities of retirement systems; authorizing a
governmental employer to issue obligations to prepay all or a
portion of the governmental employer's shares of the unfunded
accrued actuarial liabilities of retirement systems and to enter
into a lease or other contractual agreement with a trustee or
the Alaska Municipal Bond Bank Authority or a subsidiary of the
authority in connection with the issuance of obligations for
that purpose, and relating to those obligations; and providing
for an effective date."
3:38:37 PM
CHAIR HAWKER, speaking as the prime sponsor of HB 13, said the
bill is similar to legislation that passed the House last year
and emphasized that it does not propose or commit the state to
any course of action; rather HB 13 empowers the executive branch
with the ability to pursue certain types of bond transactions.
He explained that HB 13 empowers political subdivisions, which
would include municipalities, school districts, and other state
subdivisions, such as the university, to avail themselves of the
transactions authorized by the bill. In response to a query
about which governmental entities are within the scope of HB 13,
Chair Hawker said that HB 13, Section 12, AS 44.85.410, is
amended by adding a new paragraph to read:
(8) "governmental employer" means the State of Alaska
or a municipality or other state or municipal
governmental entity within the state, including an
agency, instrumentality, district, school district,
public corporation, department, division, or other
subdivision of the state or of a municipality, in its
capacity as an employer.
CHAIR HAWKER noted that this is a broad definition, and that HB
13 applies to those entities who qualify for assistance through
the Municipal Bond Bank Authority (MBBA).
CHAIR HAWKER stated that the bill empowers the MBBA to
facilitate a transaction for a municipal employer. He mentioned
that HB 13 may be altered by granting the executive branch the
authority to pursue any pension bond transactions on behalf of
the state if and when the state determines such a transaction
advisable.
CHAIR HAWKER responded to an inquiry of Representative Seaton's
by noting that nothing in HB 13 empowers a school district with
any additional it is not currently granted by its own municipal
ordinances structure. He noted that a school in a Rural
Education Attendance Area (REAA) is a direct responsibility of
the state, and so the state is the entity which would have the
authority to pursue a bond transaction on the its behalf. As
written, HB 13 does not have provisions that allow the state to
pursue transactions on behalf of REAA schools, but that
authority may included in the bill by the time is moved out of
committee.
CHAIR HAWKER explained that Section 1 empowers a Teachers'
Retirement System (TRS) employer to make a lump sum payment to
prepay all or part of its share of the unfunded actuarial
accrued liability (UAAL). This is similar to making pre-
payments on a mortgage, which can change the amount of monthly
payments owed and lower the total cost to the borrower, he
explained. There may be an amendment offered to HB 13 regarding
the re-calculations which may be done after an employer makes a
lump sum payment of all or part of its share of the UAAL. The
indemnity provision of Section 1, page 2, lines 16-19, protects
an employer that has made a pre-payment, said Chair Hawker; that
payment, "together with the earnings and losses from investment
of that payment, may not be considered in calculating that
employer's share of any discretionary payment authorized by the
state that benefits multiple employers." He emphasized that
this is an indemnity clause so that an employer will not be
penalized for taking an action to benefit itself if the state
subsequently does something that is intended to benefit all
employers.
3:51:36 PM
REPRESENTATIVE WILSON expressed concern about the effects of
past school funding decisions on the ability of some schools to
save money with which to make additional payments to their
UAALs.
CHAIR HAWKER stated that HB 13 does not have anything to do with
issues of school funding, such as school cost differentials or
other mechanisms for school funding. He said he recognizes that
many school districts may not have additional money "just
sitting around," however, the type of transactions contemplated
by HB 13 are debt transactions whereby municipalities would be
borrowing money from capital markets to make payments to their
pension funds. He explained that allowing the MBBA to
facilitate these types of transactions on behalf of smaller
municipalities would benefit the smaller municipalities by
essentially giving them an enhanced credit rating and more clout
in financial markets than a single small municipality would have
on its own.
REPRESENTATIVE GRUENBERG said that to him the type of
transactions contemplated by HB 13 seem a "bit like juggling,"
where entities are borrowing at one rate in hopes of receiving
an advantageous rate of return. He also questioned how small
communities with no tax base could participate.
CHAIR HAWKER said that the state would have to pursue
transactions for the REAAs, which could participate if the
transaction is economically viable for their situation.
3:59:48 PM
REPRESENTATIVE GRUENBERG expressed concern about whether smaller
communities, some of which he thinks may be in bankruptcy
proceedings, will have the ability to avail themselves of the
transactions provided by the provision of HB 13.
CHAIR HAWKER noted that there was a hypothetical component to
this query, such as whether a community can bankrupt itself. He
said that one would ultimately look to the state to support the
municipalities, but opined that the provisions in HB 13 are not
intended to put a governmental entity into worse financial
circumstances. The MBBA will not facilitate a transaction which
would place a community into a more difficult financial
situation. Chair Hawker referred the committee to Section 6,
page 6, which states that the MBBA authority conduct its
operations to provide the lowest rates of interest; furthermore,
Section 6 also says in part, "the legislature does not intend
that the bond bank authority ... be utilized as a means to
finance governmental employers ... beyond their capability to
meet repayment schedules and debt service requirements" of any
obligation that might be issued.
REPRESENTATIVE GRUENBERG said he was still concerned that
municipalities in poor financial situations would not be able to
avail themselves of the provisions of HB 13.
4:03:36 PM
CHAIR HAWKER agreed that as a practical matter, communities in
poor financial shape would be unlikely to come forward and seek
an independent financial transaction. However, he said the next
committee substitute for HB 13 would contain authority for the
state to pursue transactions to benefit smaller communities.
REPRESENTATIVE GRUENBERG suggested that in light of the huge
debt facing some entities, and a "state mandate" to make
payments on this debt, it might be worthwhile to consider
reinstating a 5 percent cap on the yearly contribution amount
employers are allowed to make to their unfunded pension fund
liabilities to ameliorate the effects of paying off these large
debts.
CHAIR HAWKER likened the entire retirement liability problem to
eating an elephant - it must be done one bite at a time and the
first bite must fit in one's mouth. He said he is working to
compartmentalize the numerous issues that affect pension fund
debt and to take them on piece by piece. House Bill 13 fits
into the pension debt solution by addressing how to refinance
the debt at a lower interest rate. In contrast, HB 12 will
potentially address some issues facing the TRS' pension fund.
REPRESENTATIVE SEATON offered that HB 13 is one mechanism for
dealing with some aspects of the pension fund issues, but it
will not solve all of the problems facing the PERS/TRS. There
are other bills before the legislature that address other
aspects of pension fund debt, he said.
4:09:57 PM
REPRESENTATIVE SEATON questioned the result of a state payment
into PERS above the normal cost rate, and how that would affect
future employer contributions.
CHAIR HAWKER offered his belief that a proposed committee
substitute will have a specific provision for recalculation of
contribution rates in situations where a lump sum payment has
been made into the employees' pension system. He indicated that
some of the points brought up, such as the effect of a state
contribution to the pension fund debts, may need to be
considered in the budget process.
REPRESENTATIVE ROSES summarized his understanding that because
school districts could not pay their pension fund liabilities
all at once, they were only required to pay a portion, and each
year that portion has increased. The districts have the
obligation to pay, and HB 13 sets up a mechanism for them to
issue bonds, if they choose, for part of their indebtedness. He
said he understands that the smaller districts can join
together, and the state can help them out by facilitating a bond
transaction on their behalf, and that this helps take care of
the smaller entities mentioned by Representative Gruenberg.
REPRESENTATIVE GRUENBERG cautioned that while he hopes the
aforementioned analysis is correct, he would like information to
confirm this. He suggested there be a "Plan B" if some
previously stated assumptions are not borne out.
4:14:18 PM
CHAIR HAWKER stated that the concerns expressed are beyond the
scope of HB 13, but they will be covered by other legislation,
such as HB 12.
REPRESENTATIVE FAIRCLOUGH concurred with prior points and
concerns made by Representatives Roses, Gruenberg and Seaton,
but reminded the committee that even if some efforts are made to
fix pension fund obligations now, there are still escalating
healthcare costs to consider which will further increase the gap
between payments made by employers and benefits owed to
employees.
4:15:35 PM
CHAIR HAWKER agreed that if the actuarial rate for medical costs
can be lowered, it can reduce the unfunded pension fund
liability. He noted that the governor recently issued an
administrative order establishing an Alaska Health Strategies
Planning Council in the Office of the Governor to evaluate the
state's health care options. He went on to say that Section 2
of the bill outlines how municipalities can join together to
issue debt obligations. It allows "funds diversion agreements"
between municipalities and state agencies, which allows
municipalities to assign to creditors future revenues to be
received from the state, thus giving municipalities another
credit enhancement tool. Sections 3 and 4 add facilitating
language to two sections of the PERS accounting statute to allow
for lump sum payments, and Section 5 allows a PERS employer to
make a lump sum payment to pay all or part of its share of the
UAAL without penalty, similar to what Section 1 allows for a TRS
employer.
REPRESENTATIVE SEATON asked what authority currently allows
municipalities to prepay some of their obligations for employee
retirement debt. He sought assurance that there be a record to
reflect consideration of communities that have already made
their 5 percent extra deposit and that there would be
consideration of making this bill retroactive so that
communities that are trying to help reduce the liability are
protected.
CHAIR HAWKER suggested that the Division of Retirement and
Benefits could better address that issue. He continued by
explaining that Section 6, of this bill contains the legislative
policy directives to the MBBA, with a key directive being that
assistance should be provided, but "without subsidizing the
employers beyond their means." Section 7 grants to the MBBA the
power to "create subsidiary entities to assist governmental
employers" in enacting the transactions allowed by HB 13.
Section 8 proposes new statutes which specifically define the
powers of the MBBA to engage in Pension Obligation Bond (POB)
transactions on behalf of governmental employers. Section 9
exempts POBs from the current limit for revenue bonds that the
MBBA may issue each year. Section 10 gives the MBBA the
authority to issue POBs. Section 11 exempts POBs from the
current limit for total revenue bonds and notes that the MBBA
may have outstanding at any one time. Section 12 contains the
definition of "governmental employer." Section 13 provides for
an immediate effective date.
4:26:39 PM
CHAIR HAWKER explained that Sections 7-9 do not effect how
states or municipalities can organize, but rather allow the MBBA
to work within its own charter to create corporate structures
within the state government. He opined that the provision
empowering the state to pursue the bond transactions covered by
HB 13 should remain in any future committee substitutes.
[HB 13 was held in committee.]
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
4:31:11 PM.
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