Legislature(2007 - 2008)SENATE FINANCE 532
04/23/2007 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB84 | |
| SB125 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 104 | TELECONFERENCED | |
| + | SB 84 | TELECONFERENCED | |
| += | SB 125 | TELECONFERENCED | |
| + | TELECONFERENCED |
MINUTES
SENATE FINANCE COMMITTEE
April 23, 2007
9:22 a.m.
CALL TO ORDER
Co-Chair Bert Stedman convened the meeting at approximately
9:22:09 AM.
PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Charlie Huggins, Vice Chair
Senator Kim Elton
Senator Donny Olson
Senator Joe Thomas
Senator Fred Dyson
Also Attending: ANNETTE KREITZER, Commissioner, Department of
Administration; DENISE LICCIOLI, Staff to Senator Olson; JERRY
BURNETT, Legislative Liaison, Department of Revenue; MILES
BAKER, Staff to Senator Stedman; DAVID TEAL, Director,
Legislative Finance; PAT SHIER, Director, Division of Retirement
& Benefits, Department of Administration; JIM CARROLL,
Representative, AARP and Juneau Retired Teachers Association;
DAVID HULL, Vice Chair, Alaska Council on Emergency Medical
Services
Attending via Teleconference: From Anchorage: JOHANNA BALES,
Excise Audit Manager, Tax Division/Anchorage Office, Department
of Revenue; From Fairbanks: WARREN CUMMINGS, President, Alaska
Fire Chief's Association and Fire Chief, City of Fairbanks; From
Kenai: LARRY SEMMENS, Finance Director, City of Kenai, and
Member, Alaska Retirement Management Board; From an Offnet
Location: MICHAEL LAMB, Chief Financial Officer, Fairbanks North
Star Borough
SUMMARY INFORMATION
SB 84-TESTING & PACKAGING OF CIGARETTES
The Committee heard from the bill's sponsor, the Department of
Revenue, and took public testimony. The bill reported from
Committee.
SB 125-PERS /TRS CONTRIBUTIONS; UNFUNDED LIABILITY
The Committee heard from the bill's sponsor, the Division of
Legislative Finance, the Department of Administration, and took
public testimony. A committee substitute was adopted and the
bill was held in Committee.
9:23:29 AM
Co-Chair Stedman called the meeting to order.
Senator Dyson inquired as to when SB 53, the FY 2008 (FY 08)
capital budget bill, might again be addressed by the Committee.
Co-Chair Stedman expected SB 53 to be on the Committee schedule
within the next week. Governor Sarah Palin's capital budget
amendments and other drafting revisions to the original bill
were being reviewed.
Senator Dyson asked the deadline by which Member's amendments
should be submitted.
Co-Chair Stedman urged Members to submit their amendments as
soon as possible.
In response to a question from Senator Dyson, Co-Chair Stedman
communicated that a memorandum outlining the amendment submittal
timeframe should have been distributed to Members. The status of
that notice would be revisited. The bill is "a work in
progress".
9:25:20 AM
CS FOR SENATE BILL NO. 84(JUD)
"An Act relating to the testing and packaging of cigarettes
to be sold, offered for sale, or possessed in this state;
and providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
9:25:59 AM
Senator Olson, the bill's sponsor, cited cigarettes as being the
leading cause of home fatalities in Alaska and the nation. One-
quarter of cigarette home fire fatalities do not even smoke.
This legislation is an attempt to address this issue by
specifying that "only self-extinguishing cigarettes" could be
sold in the State.
Senator Olson stated that when he was a practicing physician, he
had treated a child for injuries received in a cigarette-related
home fire. That incident has been a major factor in his decision
to sponsor this bill.
9:27:10 AM
DENISE LICCIOLI, Staff to Senator Olson, expressed that in
addition to allowing only self-extinguishing cigarettes to be
sold in the State, this bill would establish testing and
certification requirements to support that mandate.
Ms. Liccioli communicated that while it is impossible to create
a "safe" cigarette, allowing only self-extinguishing or "fire
safe" cigarettes to be sold would have an impact. These "reduced
ignition propensity cigarettes …. are designed to be less likely
than a conventional cigarette to ignite soft furnishings such as
a couch or mattress".
Ms. Liccioli stated that in order to allow these cigarettes to
be easily identified, the bill also included specifics as to how
self-extinguishing cigarette packages should be marked.
Ms. Liccioli reiterated that cigarettes are "the leading cause
of home fire fatalities in Alaska" and the nation. "The most
common material first ignited in home fires is mattresses and
bedding, upholstered furniture, and floor coverings." Fires are
often started by a dropped or forgotten cigarette, as evidenced
in an April 21, 2007 article in the Juneau Empire newspaper
[copy on file] that credited the cause of an April fourth
apartment building fire in Juneau as being a discarded cigarette
that ignited in a couch.
Ms. Liccioli stressed that one-quarter of smoking-related
fatalities are non-smokers and more than one-third of that one-
quarter are children. Studies also indicate that the risk of
dying in a smoking-related residential fire increases with age.
"38 percent of fatal smoking material fire victims are age 65 or
older."
Ms. Liccioli stated that "the most common technology utilized by
cigarette manufacturers for reduced cigarette ignition
propensity [RCIP] … is to make a paper thicker in places to slow
down a burning cigarette". She directed attention to a Coalition
for Fire-Safe Cigarettes handout [copy on file] which included
an image of the RCIP "speed bumps".
Ms. Liccioli explained the speed bump technology. When an
unattended cigarette burns down to the thicker paper speed bump
area, the burning will self-extinguish. In order to qualify as a
self-extinguishing cigarette, a cigarette must meet "established
fire safety performance standards".
Ms. Liccioli advised that similar legislation has been enacted
in New York, Massachusetts, Vermont, New Hampshire, California,
and Illinois. Utah, Kentucky and Oregon have recently passed
such legislation. Canada has enacted a nationwide fire-safe
cigarette mandate.
Ms. Liccioli pointed out that the legislation is supported by
the Alaska Fire Chiefs Association, the Alaska Firefighters
Association, the Department of Public Safety Division of Fire
Prevention, AARP, and numerous other organizations. "There is no
known opposition to this legislation."
Ms. Liccioli concluded that this legislation would save lives,
reduce injuries, and save property. It would, in essence, have
zero fiscal impact as the revenue generated by the fees
established by the bill would exceed the expense the legislation
would incur on the Department of Revenue. That Department is
charged with tracking the cigarettes that are permitted to be
sold in the State. She urged the Committee to support the bill.
9:32:05 AM
Co-Chair Hoffman asked whether this legislation would increase
the cost of a pack of cigarettes.
Ms. Liccioli assured that adoption of the bill would not
increase costs to consumers.
Co-Chair Hoffman asked whether it would increase costs to
cigarette manufacturers.
Ms. Liccioli understood that manufacturers would absorb any
increase in cost if there were any. During discussion on this
bill in a separate committee hearing, the industry had testified
that the "difference in cost to them was negligible".
9:32:52 AM
Senator Thomas asked for further information about the
compliance markings that would be required on each pack of
cigarettes.
Ms. Liccioli specified that, in order to maintain consistency,
the bill would establish marking standards. The bill's language
would allow the State's fire marshal to determine specific
marking requirements. The bill does direct that markings
established in other states should be considered.
Senator Thomas asked why the bill included language that
specified that not more than 25 percent of the cigarettes tested
in a test may exhibit full-length burns.
9:34:12 AM
Ms. Liccioli expressed that this requirement was based on the
"Certificate of Analysis" "Cigarette Ignition Strength Standard"
report compiled by the National Institute of Standards &
Technology (copy on file). That analysis "establishes the
standards for what's acceptable".
9:34:47 AM
Senator Elton questioned the $41,600 fiscal impact reflected in
the Department of Revenue's fiscal note #3, dated March 19,
2007, as that Department currently has a division that maintains
a listing of cigarettes. He thought the bill would have "the
greatest impact" on the Department of Public Safety,
specifically the fire marshal's office, and to a lesser degree,
the Department of Law. He noted, however, that the Department of
Public Safety had submitted a zero fiscal note.
Senator Elton asked for further information about the Department
of Revenue's determination that this legislation would require
an additional one-half time position.
Ms. Liccioli assured Senator Elton that the Department of
Revenue's fiscal note had been discussed. The Department
currently maintains a directory of cigarettes in compliance with
existing State tax laws. That directory is "broad" in the sense
that it would include cigarettes that would not meet the fire-
safe standards identified in this bill.
Ms. Liccioli continued. This legislation would require the
Department to maintain two different lists: one specific to each
fire-safe brand name and brand style cigarette certified fire-
safe by the State; the other specific to which cigarettes in
compliance with State tax laws. Distributors and retailers could
only sell cigarettes listed in both directories.
Ms. Liccioli advised that expanding the directory in this manner
would initially require an additional fulltime position.
Eventually that position would be reduced to halftime.
9:37:23 AM
Senator Elton thought that establishing and maintaining a list
would "be simpler and less resource intensive" than being
professed; therefore, he asked that the Department speak to
their fiscal note.
9:37:53 AM
Senator Dyson also asked whether New York and other states that
have enacted fire-safe cigarette legislation have experienced a
reduction in cigarette related fires.
Ms. Liccioli responded that no in-depth studies have been
conducted in this regard; however, preliminary reports in New
York indicate there has been a reduction in cigarette-related
fires.
9:38:34 AM
JOHANNA BALES, Excise Audit Manager, Tax Division/Anchorage
Office, Department of Revenue, testified via teleconference from
Anchorage to respond to the fiscal note question. She affirmed
that a comprehensive directory of cigarettes "approved for sale
in the State" is currently maintained by the Department. The
entirety of "those cigarettes must be stamped and in compliance
"with the nationwide Master Settlement Agreement (MSA)".
Ms. Bales advised that this legislation would change the manner
in which the Department conducts its cigarette enforcement and
investigation practices. Furthermore, the Department "would be
the primary agency" tasked with ensuring that only fire-save
cigarettes were sold in the State.
Ms. Bales communicated that the current directory includes
approximately 200 brands of MSA compliant cigarettes. The
Department would be required to compile an additional list
specific to fire-safe cigarettes. "Because of the way this"
legislation's language is written, that list would contain
approximately 1,000 different brands of cigarettes.
Ms. Bales specified that the Department would then be required
to compile a third list which would depict those cigarettes in
compliance with both the MSA and the fire-save regulations. In
addition, the Department would be required to conduct an
educational campaign for the approximate 2,000 cigarette product
retailers and distributors in the State.
Ms. Bales surmised that "additional duties" would also be
assigned to the Department.
9:41:10 AM
Co-Chair Stedman asked whether the enforcement process would
become less burdensome as more and more states adopted fire-save
cigarette legislation.
JERRY BURNETT, Legislative Liaison, Department of Revenue,
acknowledged that over time that could be the case. However, the
immediate affect would be that additional work would be levied
on the Department. Thus, it is "reasonable" to request the
additional staffing reflected in the Department's $41,600 fiscal
note.
9:42:19 AM
Senator Elton understood that the testing would be conducted by
other entities and the test results would be provided to the
State Fire Marshall in the Division of Fire Prevention,
Department of Public Safety. A list would then be provided to
the Department of Revenue. It appears that the responsibility of
the Department of Revenue would be "a data entry issue". To that
point, he questioned why this would warrant contractual expenses
and an additional staffing position the initial year and a half-
time position thereafter.
Mr. Burnett asked Ms. Bales to discuss the Department's
responsibilities in this regard.
9:43:21 AM
Ms. Bales clarified that the Department would be the sole entity
responsible for compiling the list. She noted that each
cigarette manufacturer is required to provide their cigarette
marking signatures to both the State Fire Marshal and the
Department of Revenue.
Ms. Bales asserted that the Department is responsible for
compiling and maintaining the directory, and, were this
legislation enacted the Department would be required to maintain
three lists.
Ms. Bales noted that the Department is also the primary
enforcement agency. They seize and destroy cigarettes that are
non-compliant and they must ensure that the entity from whom the
cigarettes were seized has a hearing. All these activities incur
expenses to the Department.
Ms. Bales pointed out that the Department did not receive any
additional funding when the MSA was implemented. Nor, was its
funding increased when it was subsequently directed to develop
the directory of approved MSA cigarettes. These efforts place
fiscal demands on the Department year-round as the directory is
updated constantly. Similar efforts would be applied to the two
additional lists this legislation would require.
Ms. Bales stressed that existing Department responsibilities,
including its auditing activities, are impacted whenever the
Department is asked to absorb additional functions. She
reiterated the expectation that additional duties would be
placed on the Department by this legislation.
Ms. Bales divulged that the $83,000 the State annually receives
from cigarette certification fees typically matches Department
costs; however, this legislation would incur additional
expenses.
9:45:33 AM
WARREN CUMMINGS, President, Alaska Fire Chief's Association and
Fire Chief, City of Fairbanks, testified via teleconference from
Fairbanks in support of the bill. "Cigarettes are the leading
cause of home fire fatalities in the United States, killing 700
to 900 people" annually, including both smokers and non-smokers.
Approximately four people die this way each year in Alaska.
Numerous people are also injured from cigarette related
structure fires.
Mr. Cummings noted that one-quarter of the people injured or
killed in structure fires are not the person who had been
smoking the cigarette. 34 percent of that number is children of
the smoker; 25 percent are their neighbor or friend; 14 percent
are their spouse and partner; and 13 percent are their parent.
Mr. Cummings shared that research conducted in the 1980s
concluded that fire-safe cigarettes would eliminate three out of
four cigarette related fire deaths. Had cigarette manufacturers
begun producing fire safe cigarettes at that time, an estimated
15,000 lives would have been saved to date. 27 lives would have
been saved in Alaska over the past ten years.
Mr. Cummings shared that research conducted in New York
indicates there has been "no decline in cigarette sales" since
fire safe cigarettes were introduced. However, a one-third
reduction in cigarette fire fatalities was experienced during
the first six month period in 2004 when the law went into
effect.
Mr. Cummings urged the Committee to advance this legislation.
9:48:14 AM
JIM CARROLL, Representative, AARP and Juneau Retired Teachers
Association spoke in support of the bill. As a former
firefighter, he has experienced firsthand the aftermath of
cigarette related fires.
9:49:50 AM
DAVID HULL, Vice Chair, Alaska Council on Emergency Medical
Services, spoke in support of the bill. This issue impacts all
the services associated with the Council. It is a life-safety
issue.
Mr. Hull avowed that rather than being an attempt "to regulate
the industry or to restrict smoking"; this legislation "is an
effort to curb needless fires from starting from a carelessly
discarded cigarette". During his 32 years in the medical
services industry, he responded to numerous cigarette related
fires, including a recent apartment building fire in the City
and Borough of Juneau that placed numerous people in harm's way.
The origin of that fire was a discarded cigarette that caught a
couch and ultimately the entire building on fire.
Mr. Hull urged the Committee to pass this legislation. Its goal
is to save lives and property.
9:52:17 AM
Senator Thomas, observing that the safe cigarette language that
would be required on each pack of cigarettes was extensive,
voiced concern that it might overshadow other required warnings.
He also understood that in recent years cigarette manufacturers
have reduced the number of additives included in cigarettes.
This has reduced the tendency for cigarettes to continue to
burn. He was surprised this had not been addressed in the
testimony.
9:53:20 AM
Senator Elton, who had signed on as a bill sponsor, thanked
Senator Olson for initiating the effort. While he considered
this "an important bill" and supported its being reported from
Committee, there were fiscal note issues that should be further
addressed, specifically that the Department of Revenue's fiscal
note did not address enforcement efforts. He also continued to
question the Department's request for additional staffing to
maintain the directory.
9:54:24 AM
Senator Dyson shared his continuing wariness "about government
intrusions and forcing industries to do things that they ought
to be doing on their own". Nonetheless, he exampled a government
intrusion he had supported which dealt with prostate cancer
screening. He had asked the insurance industry why government
had to intervene and force them to cover this since it was "such
a wise thing for them to do for their clients". The response
"behind closed doors" was that "we would if our competition
would do it … we don't want to have to run our rates up a little
and be at a competitive disadvantage".
Senator Dyson concluded that government interference in that
matter was acceptable; it was beneficial to both individuals and
the industry as it placed them "on the same level playing
field". He considered this legislation in the same light.
Cigarette manufacturers would have done this on their own had
everyone done it. Now that numerous states were taking similar
action, he surmised that cigarette manufacturers would
eventually switch to solely producing fire-safe cigarettes
rather than maintaining two production lines.
9:56:18 AM
Co-Chair Hoffman moved to report the bill from Committee with
individual recommendations and accompanying fiscal notes.
There being no objection, CSSB 84(JUD) was REPORTED from
Committee with two previous fiscal notes: $41,600 fiscal note #3
from the Department of Revenue and zero fiscal note #4 from the
Department of Public Safety.
AT EASE 9:56:57 AM / 10:01:38 AM
SENATE BILL NO. 125
"An Act relating to the accounting and payment of
contributions under the defined benefit plan of the Public
Employees' Retirement System of Alaska, to calculations of
contributions under that defined benefit plan, and to
participation in, and termination of and amendments to
participation in, that defined benefit plan; making
conforming amendments; and providing for an effective
date."
This was the third hearing for this bill in the Senate Finance
Committee.
Co-Chair Stedman, referring to this legislation "as the Public
Employees cost share bill", informed the Committee that
discussions with Governor Sarah Palin's Administration, the
State's actuaries, and the Alaska Retirement Management (ARM)
Board have been ongoing. The intent today would be to review a
new committee substitute, discuss updated analysis, and address
some policy issues. It is anticipated that the legislation could
report from Committee within the next few weeks.
10:02:57 AM
Co-Chair Hoffman moved to adopt Finance committee substitute
Version 25-GS1074\E as the working document.
There being no objection, the Version "E" committee substitute
was ADOPTED as the working document.
Co-Chair Stedman informed Members that, like the Governor's
original bill, Version "E" would continue to provide "a 90-day
window for amending a participation agreement". He advised
Members however, that this issue is of concern to
municipalities.
Co-Chair Stedman stated that today's discussion should include
such things as the risk-sharing component between the State and
municipalities in regards to the unfunded liabilities of the
retirement system as well as considering the establishment of
"some sort of a floor to prevent changes in the payroll base in
the future". This has been referred to as the "gaming issue".
10:04:51 AM
MILES BAKER, Staff to Senator Stedman, referred Members to the
"Analysis of Changes CS SB 125 vs. SB 125" handout [copy on
file] prepared by Co-Chair Stedman's office on April 22, 2007.
The four page handout, which compared Version "E" to the
original version of the bill, was reviewed as follows.
CS SB 125 SB 125
(Ver E 4/20/07) Corresponding
Bill Section Change Bill Section
Title Expanded to include Title -
"Alaska Retirement Modified
Management Board" and
"Teachers' Retirement
System"
Mr. Baker stated that the title change was required as Version
"E" included a new bill section that slightly changed the duties
of the Alaska Retirement Management Board (ARMB). The title
change was also required to specify that the Teachers'
Retirement System (TRS) would be changed to mirror the cost
share system currently in effect for the Public Employees
Retirement System (PERS).
CS SB 125 SB 125
(Ver E 4/20/07) Corresponding
Bill Section Change Bill Section
Sec. 1 AS 14.25.070 N/A - New
*Repeals & Reenacts the
employer contribution
section of the Teachers'
Retirement System(TRS)
Define Benefit (DB)
statutes
*Sets the annual employer
contribution rate to 12.56%,
or the DB plan employer
normal cost - whichever
is greater.
*Rate applies to entire
payroll base - regardless
of Tier
*Contributions are used to
pay DB and Defined Contri-
bution Retirement (DCR)
normal costs
*Money in excess of what
Is needed to pay system's
normal costs is applied
to the accrued unfunded
liability
*Employer contribution rate
applies to retiree/rehires
and their salary must be
included in the payroll base
*Defines "accrued unfunded
liability", "employer normal
cost rate" and "normal cost"
Mr. Baker reviewed the changes in Section 1 pertaining to the
employer contribution provisions of the TRS Defined Benefit (DB)
statutes. In the past, the State "assumed the unfunded liability
for the TRS systems" and made its annual payments to the school
districts "through an increase" in the Base Student Allocation
(BSA) formula. Section 1 would change "the employer contribution
rate for the school districts" to the Defined Benefit normal
cost rate which currently is 12.56 percent. As a result, "school
districts would be required to pay that rate … on their entire
payroll base, regardless of Tier.
Mr. Baker reminded the Committee that this payroll base concept
had been discussed during the hearings on SB 123-RETIREM'T/
BENEFITS: PUB EMPLYEES/TEACHERS, the technical fix bill which
had previously reported from Committee.
Mr. Baker stated that TRS employer contributions would be used
to pay both the normal cost of the DB members and the normal
cost of the Defined Contribution (DC) plan members. Any excess
money, which is anticipated to be a minimal amount, would be
credited toward the unfunded liabilities of the system.
Mr. Baker reiterated that these provisions are similar to those
of the PERS system.
CS SB 125 SB 125
(Ver E 4/20/07) Corresponding
Bill Section Change Bill Section
Sec. 2 AS 14.25.085 N/A - New
*Adds new section to statute
establishing the state's
contribution requirements
within TRS
*As an employer, the state
must make contributions
on behalf of its own TRS
members
*State also makes one annual
direct payment to TRS, in an
amount sufficient to pay the
system's full unfunded lia-
bility payment as determined
by the board for the coming
fiscal year
Mr. Baker stated that Sec. 2 is new language that is specific to
the State's contribution. The State would be required to pay the
12.56 percent contribution rate for any of its employees in the
TRS system. The State would also be required to make an annual
payment "to the administrator of the system" for the full
payment of the unfunded liability amount due. He reiterated that
"the mechanics" rather than the policy that had been in effect
for several years has changed in this regard: instead of
providing this money via the BSA to the school districts which
then paid the administrator, the State would now be paying the
retirement system directly.
Mr. Baker revisited Section 1. SB 141, the legislation which
established the new DC plan, established the concept of a
"floor" for the normal cost rate. Thus, the 12.56 contribution
rate, which was determined at the last valuation period, is the
"floor". The normal cost rate is recalculated on an annual basis
and if the normal cost drops below or exceeds 12.56 percent,
"the employers would be required to contribute the greater of
the two".
CS SB 125 SB 125
(Ver E 4/20/07) Corresponding
Bill Section Change Bill Section
Sec. 3 AS 14.25.220 N/A - New
*Adds definition of
"system" to the TRS
DB section of statute
*"System" means all
TRS plans
Mr. Baker explained that as a result of the changes to the
retirement system, it is important to provide consistency in the
definitions of both the PERS and TRS plans.
10:12:03 AM
CS SB 125 SB 125
(Ver E 4/20/07) Corresponding
Bill Section Change Bill Section
Sec. 4 AS 37.10.220(a)(8) N/A - New
*Amends Alaska Retire-
ment Management
Board's (ARMB)
powers and duties
(page 4, lines 17-19)
*Board can't set an
amortization period
for liquidating the
accrued unfunded
liability of less
than 25 years
Mr. Baker stated that this section addresses changes to the
ARMB. Since the State would now be responsible for picking up
the difference between what employers are contributing and what
the Board establishes as the amount required to pay down the
retirement system's unfunded liability, it was deemed necessary
to insure that the ARMB did not establish a shorter amortization
period than was feasible to pay off the liability. 25 to 30
years is the actuarial industry standard; establishing a shorter
time period would increase the rate.
CS SB 125 SB 125
(Ver E 4/20/07) Corresponding
Bill Section Change Bill Section
Sec. 5 AS 39.35.100 Sec. 1
*No change
Sec. 6 AS 39.35.115 Sec. 2-
*Slightly reworded to Modified
match language already
passed in SB 123-Tech-
nical Clarification Bill
Mr. Baker stated that this change would align the language with
that of SB 123.
CS SB 125 SB 125
(Ver E 4/20/07) Corresponding
Bill Section Change Bill Section
Sec. 7 AS 39.35.125(a) Sec. 3
* No change
Sec. 8 AS 39.35.160(c) Sec. 4
* No change
Sec. 9 AS 39.35.255 Sec. 5 -
*Adds a new section Modified
that rewrites the
employer contribu-
tion section of the
Public Employee's
Retirement System
(PERS) DB statutes
*Sets the annual
employer contribution
rate to 22%, or the
DB plan employer normal
cost - whichever is
greater
*Rate applies to entire
payroll base -
regardless of Tier
*Contributions are used
to pay DB and DCR normal
costs
*Money in excess of what
is needed to pay
system's normal costs -
are applied to the
accrued unfunded liability
*22% employer contribution
rate applies to
retire/rehires and their
salary must be included
in the payroll base
*Defines "accrued
unfunded liability",
"employer normal cost
rate" and "normal cost"
Mr. Baker noted that the provisions in Section 1 applied to TRS
and the provisions in Sec. 9 would apply to PERS. Both the PERS
and TRS systems would be cost share systems in which all assets
and liabilities would be "pooled" and shared across all
employees. Employers would be required to "pay a fixed rate of
22 percent on their entire payroll, regardless of Tier". Those
contributions would then be used by the administrator" to pay
the DB normal cost as well as the DC normal cost. Any remaining
balance would be directed toward the unfunded liability.
CS SB 125 SB 125
(Ver E 4/20/07) Corresponding
Bill Section Change Bill Section
N/A AS 39.35.260 Sec. 6 -
*No longer necessary. Deleted
Incorporated into
AS 39.35.255
N/A AS 39.35.260 Sec. 7 -
*No longer necessary. Deleted
Incorporated into
AS 39.35.255
[NOTE: These sections were not discussed.]
10:14:22 AM
CS SB 125 SB 125
(Ver E 4/20/07) Corresponding
Bill Section Change Bill Section
Sec. 10 AS 39.35.280 N/A - New
*Repeals and reenacts
the section of statute
dealing with the
state's contribution
requirements within PERS
*As an employer, state
must make the 22%
contribution on behalf
of its own PERS members
*State also makes one
annual direct payment to
PERS, in an amount
sufficient to pay
the system's full
unfunded liability
payment as determined
by the board for
the coming fiscal year
Mr. Baker stated that Sec. 10 would apply to PERS in a manner
similar to how Sec. 2 applied to TRS. In addition to paying 22
percent on its own employees, this section would require "the
State to make an appropriation to the system of the amount
required above the 22 percent collected from all PERS employers
to meet the Board's adopted rate to fund the unfunded liability
for that fiscal year".
CS SB 125 SB 125
(Ver E 4/20/07) Corresponding
Bill Section Change Bill Section
Sec. 11 AS 39.35.520(a) Sec. 8
*No change
Sec. 12 AS 36.35.610 Sec. 9
*No change
Sec. 13 AS 39.35.615(a) Sec. 10
*No change
Sec. 14 AS 39.35.615 Sec. 11
*No change
Sec. 15 AS 39.35.620 Sec. 12
*No change
[NOTE: Sections 11, 12, 13, 14, and 15 were not discussed.]
10:15:20 AM
CS SB 125 SB 125
(Ver E 4/20/07) Corresponding
Bill Section Change Bill Section
Sec. 16 AS 39.35.625 N/A - New
*Addition requested by
the Administration
*Adds a new section
of statute indicating
how PERS termination
costs will be deter-
mined under a new
cost share system
Mr. Baker informed that this section was added at the request of
the Administration as the original bill they introduced did not
clarify "how termination costs would be determined going forward
if an employer decided to completely exit from the system".
CS SB 125 SB 125
(Ver E 4/20/07) Corresponding
Bill Section Change Bill Section
Sec. 17 AS 39.35.650 Sec. 13
*No change
[NOTE: Sec. 17 was not discussed.]
10:15:40 AM
CS SB 125 SB 125
(Ver E 4/20/07) Corresponding
Bill Section Change Bill Section
Sec. 18 Repeals Sec. 14
*Adds AS 39.35.260 to
the list of repeals
(see SB 125 Sec. 6 &
Sec. 7 comments above)
*Removes AS 39.35.280
(see CSSB 125 Sec. 10
comments above)
Mr. Baker noted that Sec. 18 would repeal AS 39.35.260 and
remove references to AS 39.35.280, as new provisions in the bill
addressed those issues.
CS SB 125 SB 125
(Ver E 4/20/07) Corresponding
Bill Section Change Bill Section
Sec. 19 Transition Language Sec. 15 -
*Subsection (a)- No Modified
change
*Subsection (b) - Adds
new sentence (Page
12, Lines 5-8)
-Sentence added
at the request
of the Adminis-
tration to conform
to House amendments
to SB 123 - Technical
Clarification Bill
-Elected officials
cannot be amended
into participation
agreements unless
they make at least
the same monthly
salary as Legislators
($2,001)
*Subsection (c) - New
subsection
-Sets FY 08 contri-
bution rates below
22% for certain poli-
tical subdivisions
that make PERS contri-
butions in excess of
what was required
between FY05 - 07
-Rates are for 1 year
only and will allow
these employers to recoup
their excess contributions
in FY 08
Mr. Baker reviewed the changes in Sec. 19, subsections (b) and
(c), page 12 of the bill. Language was added to subsection (b)
at the request of the Administration. It would conform the
Version "E" committee substitute to language adopted "in a
technical fix bill in the House that says that if an employer
opts in their elected officials" only those elected officials
who are drawing a salary equal or above that made by Legislators
would be allowed.
Mr. Baker pointed out that were this legislation adopted,
employers would have 90 days after the effective date of the
bill, "to make any participation agreement changes to their
current PERS plan". They could opt out of the plan, add or
delete classes of employees, including elected officials meeting
the aforementioned criteria. No changes would be allowed after
the close of that 90-day window.
10:17:57 AM
Mr. Baker identified Sec. 19 subsection (c) as new language. He
explained that when the Administration introduced the original
version of the bill, a packet of spreadsheets had accompanied
it. Those spreadsheets included a reference to a group of PERS
employers, referred to as "Heroes", who, "during the last two
years", in addition to paying the amount required of them, "paid
an additional amount of money, assuming that they were paying
off their own individual liability". One of the Heroes, the City
of Soldotna, had also made a one million dollar deposit in FY
2005 (FY 05).
Mr. Baker stated that consideration must be given to the Heroes,
else wise, "those payments would have been for naught" if the
retirement system simply transitioned "to a pooled shared
liability system". "The whole pool is now benefiting from their
generosity."
Mr. Baker thus informed the Committee that transitional language
was included in Sec. 19 subsection (c) of Version "E" "that
would set a one year contribution rate" for the Heroes for FY 08
"that would allow them to recoup the money they contributed over
the last two years". Then, beginning with the FY 09 contribution
rate period, the Heroes rates would align with other
municipalities at the 22 percent rate.
Mr. Baker referred the Committee to a one-page spreadsheet
titled "FY 08 Rate Adjustments Required to Recoup Excess Muni
PERS Contributions from Prior 3 Years" [copy on file], prepared
by Co-Chair Stedman's office on April 22, 2007. This spreadsheet
depicted the mechanics of the calculations.
Mr. Baker pointed out, however, that the City of Soldotna's FY
08 contribution rate at the 22 percent level would be $537,000.
They have contributed an excess of $1,276,229, and even if their
contribution level dropped to zero in FY 08, they would still
have an excess balance under the proposed formula in Version
"E". Thus, "it is contemplated that the Legislature" would
address this and other Heroes' excess payments in the FY 08
Capital Budget.
CS SB 125 SB 125
(Ver E 4/20/07) Corresponding
Bill Section Change Bill Section
Sec. 20 Transition Language Sec. 16
*No change
Sec. 21 Revisor's Instructions Sec. 17
*No change
Sec. 22 & Effect Date Clauses Sec. 18 &
Sec. 23 *No change Sec. 19
[NOTE: Sections 20, 21, 22, and 23 were not discussed.]
Mr. Baker concluded his overview of the changes in the Version
"E" committee substitute.
10:20:53 AM
SB 125
Setting Employer Contribution Rates in Statute
PowerPoint Presentation by the Legislative Finance Division
DAVID TEAL, Director, Legislative Finance Division, utilized a
PowerPoint presentation [copy on file] to address the fiscal
component of the bill.
Page 2
Categorization of the Governor's FY 08 GF Increments
($750.8 Million Total from FY 07 Base)
[Pie chart depicting General Fund increments as proposed in
the Governor's FY 08 budget.]
Mr. Teal informed the Committee that the information depicted on
page 2, mirrored information provided earlier in the Legislative
Session when Governor Sarah Palin first introduced her FY 08
budget.
Mr. Teal noted that this information was included solely "as a
reminder of the magnitude" of the retirement increments
supported by the State's general funds (GF). For example: the
School District TRS/PERS FY 08 GF increment of $207,400,000; the
Agency Retirement, Health, and Wage increases FY 08 GF increment
of $186,400,000; and the Political Subdivisions PERS FY 08 GF
increment of $77,500,000. In excess of $450 million would be
spent to support these retirement increases in the FY 08 budget.
Page 3
· The pie chart is based on June 2005 actuarial valuation
(and a PERS contribution rate just under 40%).
· Preliminary June 2006 actuarial valuation put the PERS
rate near 47%.
· Each point means a $17 million cost increase, so the
amount of PERS contributions could increase another $120
million in FY09.
Mr. Teal reviewed the information. Each percent of the
approximately $1,700,000,000 wage base "carries with it $17
million worth of additional contributions". "The PERS
contribution could be understated by as much as $120 million."
10:22:39 AM
Page 4
Liability/Asset Gap
PERS/TRS Funding Ratio
[Chart comparing the PERS/TRS Accrued Liability to Assets
for the time period FY 97 through Rate Year FY 08. The gap
between accrued liabilities and assets is the Unfunded
Liability of the PERS/TRS Systems. The Unfunded Liability
in FY 08 is anticipated to be $6.9 billion.]
Mr. Teal stated that this chart reflects the unfunded
liabilities of the systems.
10:22:59 AM
Page 5
Recap of Major Points
1. The gap will grow before it begins to fill.
- 5 point cap on annual rate increases
- lag between action and response
2. Unfunded liability is not going away by itself - it is a
bill that must be paid.
3. The State will pay most of the bill, either by
appropriating money to agencies and school districts
(so they can pay their bills) or by appropriating
money directly to DOA.
4. The cost of the direct and indirect methods is identical
in most cases.
5. Paying the bill is not the same as fixing the system.
Mr. Teal reviewed the information and stressed that the unfunded
liability gap would continue to grow before it begins to
decrease. This is because, for a period of time, the system was
under-funded as a result of there being a five point maximum
annual rate increase limit imposed on employer contribution
rates. Another reason is the two to three year lag time between
when a rate was adopted and when the payments at that rate
impacted the unfunded liability.
10:24:13 AM
Page 6
Moving Forward
Goal: Find a permanent fix that is affordable to both the
state and its political subdivisions.
1. Paying TRS costs directly to DOA in order to reduce the
employer contribution rate will save $11 million
annually in the University's Optional Retirement Plan.
(In the operating budget; SB 125 makes the fix
permanent)
2. Cap the employer contribution rate to PERS.
3. Revise actuarial methods.
Mr. Teal reviewed the goal sought by this bill and the three
components that would support that effort. He noted that the
ARMB supports making payments for the costs of PERS and TRS
directly to the Department of Administration. This effort would
allow the TRS employer contribution rates to be reduced to 12.56
percent. This would save the University of Alaska approximately
$11 million a year on its annual optional retirement system.
Mr. Teal advised that the savings to the University have already
been considered in the FY 08 operating budget as the TRS rate is
funded in that budget. Thus, "in the perspective of SB 125, this
first point is not particularly interesting."
Mr. Teal informed the Committee that ARMB "has passed a
resolution in support of direct payments to the Department of
Administration". This direction is included in both the House
and Senate operating budgets, and there is no impact beyond that
unless, the discussion was expanded to address K-12 education
funding.
Mr. Teal advised that he would not be addressing K-12 education
funding at this point, as the intent is to keep the discussion
focused on the retirement funding issue. Nonetheless, when K-12
education funding legislation was before the Committee, it would
include some TRS issues that would require addressing.
10:26:14 AM
Page 7
Impact of SB 125's Fixed PERS Rate
1. The impact is primarily on political subdivisions - the
state pays the full bill for agencies.
A fixed rate can make retirement costs more affordable
to political subdivisions by shifting costs to the
state; a fixed rate for employers does not reduce the
total amount that must be paid.
2 Implements two of AML's three pillars - a fixed rate is
as stable and predictable as possible.
3. The third pillar - affordability - is more complex. The
bill must be paid; the question is "Who pays it?"
Resolution: SB 125 set employer rates in statute at 22% of
payroll, with the state picking up the remainder.
Mr. Teal reviewed the information and noted that when the Alaska
Municipal League (AML) testified on this bill, they had
requested the retirement funding fix consider three "pillars:
stability, predictability, and affordability".
Mr. Teal stated that the 22 percent fixed rate proposed in this
legislation clearly addresses the stability and predictability
pillars. However, a tremendous amount of consideration has been
given to the more complex affordability pillar in the
development of this bill.
Mr. Teal concluded however, that the bill must be paid, and the
question is whether the State or the municipalities would be
responsible for paying it. The resolution is that the employer
rate would be set at 22 percent of payroll, "with the State
picking up the remainder of the cost".
10:27:57 AM
Page 8
Contribution Rates on Total Alaska PERS Payroll
Based on Buck's 2006 Actuarial Valuation
[A chart comparing four employer contribution level
scenarios over the period from 2008 through 2032: the
employer contribution levels that would have been paid
based on actuarial valuations; the employer contribution
levels that would have been paid based on a Level Dollar
Rate mechanism recommended by the actuary "as the
appropriate method to use for a closed" Defined Benefit
System; the fixed 22 percent contribution level proposed in
this bill; and a contribution rate level recommended by the
actuarial for an open Defined Benefit System plan.]
Mr. Teal stated that this chart is best explained by realizing
that under the provisions of this bill, the municipality
employer contribution rate would be set "at 22 percent
regardless of what the full rate is". He cautioned that the
chart solely depicts contribution rate levels and does not
reflect costs.
10:28:55 AM
Page 9
State Spending for Municipal PERS Assistance
Based on Buck's 2006 Valuation
(Real 2008 Dollars)
[A chart reflecting the costs to the State under the fixed
municipal 22 percent contribution rate proposed in this
legislation as calculated by either the Actuarial Rate or
the Level Dollar Rate.]
Page 10
Reading the Charts
· The cost of municipal PERS assistance is expected to
decline over time.
· Both payment schedules eliminate the unfunded liability
in 25 years or less, but the Level Dollar method costs
more, especially in the near-term.
· The amortization methods used by the actuaries produce
rates that are too low in the distant future, implying
that near-term rates are too high.
· Risk Sharing is not likely to be needed - it is likely
that municipalities will push for a rate reduction in a
few years.
Mr. Teal noted that, under the Actuarial Rate scenario, the
State would be responsible for approximately $45 million dollars
in FY 08. The amount would peak at approximately $65 million in
2010 and then decline. While the State's obligation would
initially be higher under the Level Dollar Rate scenario than it
would be under Actuarial Rate scenario, both would peak around
2010 and then decline. It should be noted that "both payment
schedules eliminate the unfunded liability in 25 years or less".
Mr. Teal stated that the unfunded liability is eliminated when
the rate reaches the Normal Rate, which "is the cost of simply
funding the system on a continuing basis". It is the Past
Service Cost, which is "the cost to pay the unfunded liability"
that encompasses everything above the Normal Rate cost.
Mr. Teal stated that by the end of the amortization period, the
payment schedule would be below the Normal Cost rate. This would
indicate that "the unfunded liability has been paid off".
However, the fact that "the rates actually go below the Normal
Cost rate and don't just meet it gradually … implies that rates"
in the initial years are too high.
Mr. Teal noted that, as mentioned in Co-Chair Stedman's initial
remarks, another issue of concern is that of "'risk sharing'.
The Administration has expressed concern that" there is too much
risk to the State involved in the 22 percent rate plan. While
municipalities would be given stability and predictability, the
State would subject itself to risks by agreeing to be
responsible for the balance of the unknown costs.
Mr. Teal stated that risk sharing was not included in the
original bill and has not been addressed in the committee
substitute. It was not addressed in the original bill as rates
are declining and risk levels decline in tandem with declining
rates.
Mr. Teal pointed out that rates are not anticipated to continue
their upward trend as originally "feared when we first started
looking" at establishing a fixed 22 percent rate.
Page 11
What is not in the Charts
· Money to fund the "blue line" amortization schedule is in
the operating budget; the $125 million required to follow
the "black line" schedule has not been appropriated.
· The revised revenue forecast essentially eliminates the
FY 08 surplus projected earlier, and a deficit is
projected for FY 09. This raises questions about the
wisdom of paying as much as possible as soon as possible.
· We are no longer required to follow the black line
because the full wage base is subject to contributions,
meaning that PERS no longer operates as a closed system
for funding purposes.
Mr. Teal advised that funding of the Level Dollar Rate funding
method, depicted by the "black line" on the chart, is included
in the FY 08 operating budget. Funding for the Actuarial Rate
funding method, depicted by the "blue line" on the chart, which
was adopted by the ARMB, is not.
Mr. Teal next reminded the Committee that the recently revised
revenue forecast eliminated the surplus that had been
anticipated in FY 08. Due to the deficit anticipated for FY 09,
the State would not have the cash flow required to pay high
rates and high cash flow toward the unfunded liability in the
initial years.
Mr. Teal also advised there is a lack of certainty in regards to
whether to adopt the Actuarial Rate or the Level Dollar Rate
methodology. During discussions with the State's actuary, Buck
Consultants, the Division learned that the rate adopted by the
ARMB was appropriate for a closed system; however, if SB 123-
RETIREM'T/ BENEFITS:PUB EMPLYEES/TEACHERS is enacted, the full
wage base would be subject to contribution. Thus, even though
"it is technically" a closed system in that employees cannot
join the Defined Benefit System, "the PERS system would no
longer act as a closed system". However, "from a funding
perspective, the employer will be paying the same contributions
on new employees as they are on existing employees, so that the
system, for actuarial purposes, acts like an open system".
Mr. Teal concluded therefore that "there would be no need to go
to the higher rate schedule".
10:34:02 AM
Page 12
Where Do We Go From Here?
Work with the ARM Board to Revise Actuarial Methods and
Reset FY 08 Rates
Objectives:
1. A permanent, affordable fix for the burden that
contribution rates above 22% would place on political
subdivisions.
2. A smooth curve that pays off the unfunded liability
in 25 years.
Mr. Teal reviewed actions that should be taken. Buck Consultants
has been working on developing a proposal that would provide "a
smooth curve that pays off the unfunded liability and meets the"
Normal Cost Rate in 25 years.
Mr. Teal concluded his remarks.
10:35:06 AM
Senator Thomas asked for further information regarding the
information on page 3 that specified that each contribution
point increase would equate to a $17 million PERS cost increase.
10:35:35 AM
Mr. Teal explained that the total wage base for all PERS
employees is approximately $1.7 billion. Thus, the cost of each
percent required to pay into the retirement system is
approximately $17 million. For example, increasing the
contribution rate from 40 percent to 47 percent would be a seven
percent increase. This would equate to approximately $120
million.
AT EASE 10:36:14 AM / 10:37:38 AM
ANNETTE KREITZER, Commissioner, Department of Administration,
informed the Committee that the Administration debated about
whether or not to include a 90-day "window" in this cost-share
bill. Ultimately the decision was made to support it as a matter
of fairness to the municipalities. During this "window",
municipalities could "amend their participation agreements" and
opt groups of employees in or out of the PERS system. She also
noted that the House added language that would allow
municipalities to opt in local elected officials, provided they
met specified criteria, during this 90-day period.
Commissioner Kreitzer stated that an effort was made to craft
the 90-day window language in a manner which would both provide
flexibility to municipalities and, at the same time, negate
their ability to conduct "gamesmanship", a term that refers to a
situation in which a municipality might opt in and out groups of
employees to their benefit. Further discussion on the
appropriate language should occur before the bill reports from
Committee.
10:39:44 AM
Co-Chair Stedman asked for further information about the
potential for gaming.
10:39:55 AM
Commissioner Kreitzer understood "gamesmanship" is a term for a
situation in which "you [an employer] move covered employees in
and out of your participation agreement", and in effect "shrink
the amount of your payroll base". Thus, when transitioning to a
cost share system, the concern is whether "you [an employer]
should force folks to pay for members that you had opted out of,
that you had taken out of the PERS system that now you may, in
this 90-day period, want to add back in".
Senator Elton characterized gamesmanship "as a semi-pejorative
term". He exampled a situation in which the City and Borough of
Juneau rehired a retired individual as the airport manager "and
that position was removed from the PERS plan because of that".
He understood that under this legislation, the City would have
90 days to decide whether or not to opt back in that position,
for, in the future, a person with a different circumstance might
hold that position.
Commissioner Kreitzer affirmed. As exhibited by Senator Elton's
example, many types of circumstances could be addressed in the
90-day period. She apologized for utilizing the term
gamesmanship in a blanket fashion.
10:41:45 AM
PAT SHIER, Director, Division of Retirement & Benefits,
Department of Administration, advised that Sec. 9 of the bill
addresses the issue of rehiring a retired person; including the
situation exampled by Senator Elton. Sec. 9 specifies that that
individual must be included in the municipality's payroll base.
10:42:35 AM
Due to the anticipation of the State experiencing cash flow
problems in the next few years, Commissioner Kreitzer expressed
concern that the State would be responsible for funding any
shortfall beyond the amount paid by municipalities. She has
communicated to both Mr. Teal and members of the Legislature the
fact that she does not consider either this bill or SB 123 to be
"a permanent fix".
Commissioner Kreitzer also recommended that the Legislature
continue to consider "a cash infusion into TRS…"
10:43:45 AM
Co-Chair Stedman emphasized that the current effort is focused
on this bill and the "fix-it bill", SB 123; "they're two big
pieces" of the effort to address the liability of the retirement
systems. Once the liability is "isolated", the next step would
be "to look at the cash flow and work on slicing that up and
minimizing the impact on the general fund draw.
Commissioner Kreitzer corrected a component of the Division of
Legislative Finance's presentation; the unfunded liability
estimated for FY 08, as depicted on page 4, should be $8.6
billion rather than $6.9 billion.
Co-Chair Stedman agreed with Commissioner Kreitzer. The unfunded
liability could range between eight and ten billion dollars
depending on such things as which year the valuation was based
on. There have been incremental increases in the liability level
for the past several years.
10:45:13 AM
Senator Elton asked the Commissioner to provide information on
the affect the 90-day window might have on administrative
hearings, such as the dispute currently being considered about
how the City & Borough of Juneau manages some of its police
department employees. A decision on this issue is not expected
until the fall of 2007.
Commissioner Kreitzer stated that clarification on this issue
would be provided, as she has an opportunity to discuss it with
the Department of Law.
10:46:13 AM
Senator Thomas questioned how the rehire of a past service
employee during the 90-day period would be treated. Language in
the bill specifies that "an employer may not award past service
to employees added during the 90-day period. To that point, he
asked whether "past service is considered unearned" in that an
employer could "grant service to employees that are not previous
employees".
Commissioner Kreitzer thought not. The language was carefully
developed with the objective to be very clear on what options
were available to municipalities. Nonetheless, she would clarify
this with the Department of Law.
Senator Huggins noted that the bill also contained similar
provisions regarding individuals with military service.
Senator Dyson also understood that to be the case.
10:47:44 AM
LARRY SEMMENS, Finance Director, City of Kenai, and Member,
ARMB, testified via teleconference from Kenai and thanked those
who have worked so diligently on addressing the PERS and TRS
funding issues.
Mr. Semmens asked for clarification on the ARMB's ability to
specify the amortization period as 25 years; specifically
whether the intent was to adopt a rolling 25-year period in
which each year the ARM Board would re-finance the unfunded
liability over the remaining years depending on that year's
valuation.
Co-Chair Stedman acknowledged that for several years the
unfunded liability was addressed in a rolling amortization
manner; however, "the intent here is to amortize and liquidate
this liability over next 25 years".
Mr. Semmens approved of this approach.
Mr. Semmens next addressed language in Sec. 9 of the bill. While
a rate lower than the 22 percent employer contribution rate
specified in this bill would have been preferred, employers
would accept the certainty of a set rate. Nonetheless, numerous
employers set their FY 08 rate based on the language in the
Governor's budget which specified a maximum five percent
increase "over their FY 07 out-of-pocket costs".
Mr. Semmens noted that under the Governor's budget plan, the
City of Kenai would have experienced a 36 percent increase over
their FY 07 budget, absent consideration of the State's five
percent PERS assistance. That increase was factored into the
City's FY 08 budget. Increasing the contribution rate to 22
percent as proposed in this legislation would amount to a 60
percent increase. Therefore, he asked the Committee to consider
the Governor's budget plan for FY 08.
Mr. Semmens also questioned the intent of the "regardless of the
employee's employment status at date of termination" language in
Sec. 13, page 9, line 31. In his view, a former employee, who he
defined as an active employee, "should not be impacted by an
employer's termination, and therefore should not vest".
Mr. Semmens next addressed language in Sec. 15 regarding
termination. "60 days is not a very long time for a municipality
to either pay their termination bill or" establish a payment
plan that must be approved by their local legislative body.
10:52:22 AM
While Mr. Semmens agreed with language in Sec. 16 that provided
the State the ability to calculate an employer's termination
plan, he questioned the mechanics of the process as the State is
currently unable to determine either an employer's assets or
liabilities.
While Mr. Semmens appreciated the ability provided in Sec. 19
that would allow a municipality to include elected officials in
its plan, he was concerned that going forward, municipalities
would be limited to the classes of employees that were in place
at the 90-day period. This is bad public policy; it would not
consider an "immediate or abrupt change in an employer's salary
base". An example of this would be the City of Kenai opting out
or contracting out its street department. While that class of
employee would continue to be part of the City's plan, the
city's salary base would drop significantly. "And the rest of
the members, particularly the State, would pay for it".
Mr. Semmens strongly objected to the provision in the bill that
would prohibit a municipality from being able "to add or delete
classes of employees". This is an important issue. A different
method in this regard should be adopted.
10:55:04 AM
MICHAEL LAMB, Chief Financial Officer, Fairbanks North Star
Borough, testified via teleconference from an offnet location
and concurred with Mr. Semmens' remarks and concerns.
Mr. Lamb then referenced Commissioner Kreitzer's comments
regarding the 90-day window and the associated concern about the
possibility of a municipality "shrinking" its salary base and
forcing other employers "to end up sharing or having to cover
the costs".
Mr. Lamb contended that the 90-day window option was unlikely to
be the best way to avoid the gamesmanship issue. While he
thought this might be a universal concern, an alternate method
to address it should be sought. He agreed that the shrinking of
the salary base due to opting out or contracting out services is
a real concern.
Mr. Lamb suggested that an AML suggestion to specify FY 06 as
the salary base year could be a preferred option to the 90-day
window method.
Mr. Lamb concluded that a flat TRS rate, adopting a 25 year
amortization schedule, and other provisions in the bill would
"make a huge difference to understanding the State's volatility
out into the future". He looked forward to the receipt of an
updated report from Buck Consultants as mentioned by Mr. Teal.
In summary, while there are still a few items that need
addressing, he is "pleased with the effort" and appreciated the
work to date.
Co-Chair Stedman asked Mr. Lamb to provide further comments to
his office once he had time to review the new committee
substitute more thoroughly.
10:59:06 AM
Senator Elton stated that in addition to the consideration
afforded the Hero communities; consideration should also be
given to those communities that might experience a substantial
increase in their contribution rate. There is concern that those
communities might decide to entirely opt out of the plan.
AT EASE 10:59:52 AM / 11:00:03 AM
Co-Chair Stedman noted the intent to re-address this bill in a
few days.
11:00:22 AM
Commissioner Kreitzer announced that the Department had
developed a response to a question asked earlier by Senator
Thomas.
Mr. Shier communicated that individuals with military service
would be unaffected by this bill. The intent of the language was
to prevent credit for non-PERS service for those groups of
employees that may, in that period of time, opt in".
11:01:06 AM
The bill was HELD in Committee.
ADJOURNMENT
Co-Chair Bert Stedman adjourned the meeting at 11:01:13 AM.
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