Legislature(2017 - 2018)SENATE FINANCE 532

04/25/2018 09:00 AM Senate FINANCE

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                 SENATE FINANCE COMMITTEE                                                                                       
                      April 25, 2018                                                                                            
                         9:29 a.m.                                                                                              
9:29:22 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair  MacKinnon  called  the  Senate  Finance  Committee                                                                    
meeting to order at 9:29 a.m.                                                                                                   
MEMBERS PRESENT                                                                                                               
Senator Lyman Hoffman, Co-Chair                                                                                                 
Senator Anna MacKinnon, Co-Chair                                                                                                
Senator Click Bishop, Vice-Chair                                                                                                
Senator Peter Micciche                                                                                                          
Senator Donny Olson                                                                                                             
Senator Gary Stevens                                                                                                            
Senator Natasha von Imhof                                                                                                       
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Leslie  Ridle, Commissioner,  Department of  Administration;                                                                    
Kathy   Lea,   Chief    Pension   Officer,   Department   of                                                                    
Administration;  Representative Neal  Foster, Sponsor;  Paul                                                                    
LaBolle,   Staff,   Representative   Neal   Foster;   Kathie                                                                    
Wasserman,  Executive  Director,  Alaska  Municipal  League;                                                                    
Representative  Geran Tarr,  Sponsor;  Diana Rhodes,  Staff,                                                                    
Representative Geran Tarr.                                                                                                      
PRESENT VIA TELECONFERENCE                                                                                                    
Rob  Johnson,  Chair,  Alaska Retirement  Management  Board,                                                                    
Anchorage; John  Korta, Mayor, City  of Galena,  Galena; Amy                                                                    
Seitz, Alaska Farm Bureau, Soldotna.                                                                                            
HB 47     MUNICIPAL PERS CONTRIBUTIONS/INTEREST                                                                                 
          HB 47 was HEARD and HELD in committee for further                                                                     
HB 217    LOCAL FOOD GOV PROCUREMENT; FARM TOURS                                                                                
          CSHB 217(FIN) was HEARD and HELD in committee for                                                                     
          further consideration.                                                                                                
CSHB 306(FIN)                                                                                                                   
          PERS/TERS DISTRIBUTIONS                                                                                               
          CSHB 306(FIN) was HEARD and HELD in committee for                                                                     
          further consideration.                                                                                                
CS FOR HOUSE BILL NO. 306(FIN)                                                                                                
     "An  Act relating  to  disbursement  options under  the                                                                    
     Public Employees'  Retirement System of Alaska  and the                                                                    
     Teachers' Retirement System  of Alaska for participants                                                                    
     in the defined contribution  plan; and providing for an                                                                    
     effective date."                                                                                                           
9:30:22 AM                                                                                                                    
LESLIE  RIDLE, COMMISSIONER,  DEPARTMENT OF  ADMINISTRATION,                                                                    
conveyed that  the Alaska Retirement Management  (ARM) Board                                                                    
asked  the   administration  to  introduce  the   bill.  She                                                                    
explained  that the  Defined Contribution  Committee of  the                                                                    
ARM board  worked to  assure that  anyone under  the defined                                                                    
contribution  plan could  retire  with a  good pension.  She                                                                    
stated  that  currently, all  the  products  that a  retiree                                                                    
could  receive through  the defined  contribution plan  were                                                                    
not  listed  in  statute.  She lamented  that  this  limited                                                                    
flexibility of what could be  offered to retirees that would                                                                    
allow for a  lasting pension and secure  financial future in                                                                    
retirement. She  said that those with  supplemental benefits                                                                    
system benefits  as well  as deferred  compensation benefits                                                                    
had  retirement options  that were  written into  regualtion                                                                    
and were flexible in their  product offerings. The ARM board                                                                    
had asked  for a bill  that would  allow for products  to be                                                                    
offered  through  regulation  for those  under  the  defined                                                                    
contribution plan. She  shared that the change  would not be                                                                    
of cost to the state and  there would be no actuarial change                                                                    
in the plan.                                                                                                                    
9:33:28 AM                                                                                                                    
Co-Chair MacKinnon  asked whether  it had been  written into                                                                    
the bill  that there would be  no cost to the  state for the                                                                    
KATHY   LEA,   CHIEF    PENSION   OFFICER,   DEPARTMENT   OF                                                                    
ADMINISTRATION,  replied  that  it  was   not  in  the  bill                                                                    
specifically,   but  within   the  plan   itself,  all   the                                                                    
disbursement  options  were  up   to  the  participant.  She                                                                    
related  that any  cost  associated  with the  participant's                                                                    
choices would be borne by the participant.                                                                                      
Co-Chair  MacKinnon asked  whether the  administration would                                                                    
oppose language  that stipulated that the  change in statute                                                                    
would not be of cost to the state.                                                                                              
Ms. Lea  responded that the administration  would not oppose                                                                    
such language.                                                                                                                  
9:34:47 AM                                                                                                                    
Senator Micciche asked for examples  of payment choices that                                                                    
would be different from what currently existed.                                                                                 
Ms. Lea  detailed that current  options included a  lump sum                                                                    
payment,  a  bi-annual  lump  sum  payment,  or  an  annuity                                                                    
payment that  was designed  in the  1980s. She  relayed that                                                                    
new  products  under review  by  the  ARM board  included  a                                                                    
qualified lifetime  annuity contract, which would  allow for                                                                    
a deferred  portion of up to  $125 thousand to be  paid when                                                                    
the retiree  was 80 years  old. This  was a method  to hedge                                                                    
against  longevity  risk.  She  related  that  a  guaranteed                                                                    
lifetime  withdrawal option  would  allow  a participant  to                                                                    
ensure their  balance; at the time  the participant retired,                                                                    
the highest  balance they  had in the  plan during  the time                                                                    
they had  been in that  option, would be what  their monthly                                                                    
payment was  based on.  She added  that if  after retirement                                                                    
the account balance grew, they  would get the benefit of the                                                                    
higher amount and would be  protected against market cycling                                                                    
9:36:27 AM                                                                                                                    
Vice-Chair Bishop  considered that the bill  offered options                                                                    
for guaranteed lifetime income.                                                                                                 
Ms. Lea answered in the affirmative.                                                                                            
Vice-Chair Bishop  stated he  supported the  defined benefit                                                                    
option. He thought if the bill  became law, it would give an                                                                    
individual an option to have guaranteed benefit.                                                                                
Ms.  Lea stated  that  some  of the  choices  could mimic  a                                                                    
defined benefit option.                                                                                                         
9:37:37 AM                                                                                                                    
Senator von  Imhof referenced her experience  in finance and                                                                    
understood the products.  She referenced Vice-Chair Bishop's                                                                    
comments and agreed  that a product could  mimic the defined                                                                    
benefit option  but cautioned  that investment  cycles could                                                                    
vary  to a  degree that  it  could risk  a person  outliving                                                                    
funds. She  referenced page  2, line 11  of the  bill, which                                                                    
provided  options for  people that  fit their  specific life                                                                    
needs but  felt discomfort with  the suggestion that  a plan                                                                    
could be designed  that would provide a  person benefits for                                                                    
the rest of their lifetime.                                                                                                     
9:39:25 AM                                                                                                                    
Senator Micciche wanted  to clarify the intent  of the bill.                                                                    
He stated that  the bill allowed for products  to be offered                                                                    
in  regulation.  He  stressed that  the  bill  provided  the                                                                    
ability   to  list   products  available   to  retirees   in                                                                    
Commissioner Ridle agreed. She  added that the bill mimicked                                                                    
what  was  currently  done  with  the  supplemental  benefit                                                                    
system  and deferred  compensation; when  a person  retired,                                                                    
they had different options in regualtion for those plans.                                                                       
9:40:29 AM                                                                                                                    
Vice-Chair Bishop  surmised that  the bill would  provide an                                                                    
additional tool  for an employee participating  in the state                                                                    
retirement plan.                                                                                                                
Ms. Ridle answered in the affirmative.                                                                                          
Senator  Stevens stated  that many  individuals had  retired                                                                    
under the  defined contribution plan  and could not  go back                                                                    
and  renegotiate their  retirement  benefits  under any  new                                                                    
extended benefit plan.                                                                                                          
Ms.  Lea stated  that  if an  individual  had removed  their                                                                    
contributions from  the plan,  it would  not be  possible to                                                                    
renegotiate; however, if  an individual's contributions were                                                                    
still in the  plan, depending on the type of  option the ARM                                                                    
board chose,  they could  be able to  take advantage  of the                                                                    
new options.                                                                                                                    
9:41:51 AM                                                                                                                    
Ms. Lea addressed the Sectional Analysis (copy on file):                                                                        
     Section  1:   Amends  AS  14.25.420(a)  to   allow  for                                                                  
     distribution options for  participants in the Teachers'                                                                    
     Retirement  System (TRS)  defined contribution  plan to                                                                    
     be authorized by regulation.                                                                                               
     Section  2:   Amends  AS  39.35.820(a)  to   allow  for                                                                  
     distribution  options for  participants  in the  Public                                                                    
     Employees'    Retirement    System    (PERS)    defined                                                                    
     contribution plan to be authorized by regulation.                                                                          
     Section 3: Adds section to  the uncodified law to allow                                                                  
     the Department  of Administration to  adopt regulations                                                                    
     as necessary to implement this legislation.                                                                                
    Section 4: Establishes an immediate effective date.                                                                       
9:43:00 AM                                                                                                                    
Co-Chair  MacKinnon   asked  whether  the  choosing   of  an                                                                    
immediate   effective  date   would  change   the  actuarial                                                                    
assumptions for any of the plans.                                                                                               
Ms. Lea  answered in  the negative  and reiterated  that all                                                                    
the costs were borne by  the participants; there would be no                                                                    
impact to the plan.                                                                                                             
Co-Chair MacKinnon asked  whether there was a  reason that a                                                                    
fiscal year was not chosen for implementation.                                                                                  
Ms. Lea stated that the  immediate effective date was chosen                                                                    
based on the deliberation schedule  of the ARM board on what                                                                    
type  of options  could be  chosen and  whether the  current                                                                    
options  could be  expanded. She  added that  regulations to                                                                    
add  new options  would not  occur until  the ARM  board had                                                                    
gone through  deliberations, had  public hearings,  and made                                                                    
decisions on which new options to provide.                                                                                      
9:44:11 AM                                                                                                                    
Vice-Chair Bishop commented that  even without knowing about                                                                    
the potential products, he considered  that the change could                                                                    
help with employee retention.                                                                                                   
Co-Chair MacKinnon directed attention to the fiscal note.                                                                       
Vice-Chair  Bishop addressed  FN  2 from  the Department  of                                                                    
Administration, OMB  Component 64.  The fiscal  note carried                                                                    
zero fiscal impact. He read from the analysis:                                                                                  
     This  change will  allow more  flexibility to  the Plan                                                                    
     Administrator, with  adoption by the  Alaska Retirement                                                                    
     Management  Board, to  add new  options as  they become                                                                    
     available and  are of  benefit to  participants. Future                                                                    
     disbursement  options will  go  through the  regulatory                                                                    
     process  with public  notice  to  all stakeholders  and                                                                    
     interested parties.                                                                                                        
     This legislation  will have no actuarial  impact to the                                                                    
     TRS or  PERS since any  costs incurred when  electing a                                                                    
     distribution  option  is   borne  by  the  participant.                                                                    
     Therefore, the agency submits a zero-fiscal note.                                                                          
9:45:49 AM                                                                                                                    
Co-Chair MacKinnon OPENED public testimony.                                                                                     
9:46:21 AM                                                                                                                    
ROB  JOHNSON,  CHAIR,  ALASKA RETIREMENT  MANAGEMENT  BOARD,                                                                    
ANCHORAGE  (via  teleconference),  thought  that  Vice-Chair                                                                    
Bishop had  summarized the  intent of  the bill.  He thought                                                                    
the bill would provide more  tools and options for retirees.                                                                    
He pointed out that the  bill would have no additional costs                                                                    
to the  state. He noted  that the ARM board  had unanimously                                                                    
supported the expansion of options as outlined in the bill.                                                                     
Co-Chair  MacKinnon reiterated  her question  concerning the                                                                    
immediate effective date.                                                                                                       
Mr.  Johnson understood  that the  immediate effective  date                                                                    
would not  have an immediate  effect. He explained  that the                                                                    
effective  date  would  allow   for  the  process  to  begin                                                                    
CSHB 306(FIN)  was HEARD and  HELD in committee  for further                                                                    
Co-Chair  MacKinnon advised  that  proposed amendments  were                                                                    
due the following day at noon.                                                                                                  
9:49:16 AM                                                                                                                    
HOUSE BILL NO. 47                                                                                                             
     "An  Act   requiring  certain  municipalities   with  a                                                                    
     population  that  decreased  by more  than  25  percent                                                                    
     between 2000  and 2010 that participate  in the defined                                                                    
     benefit  retirement  plan   of  the  Public  Employees'                                                                    
     Retirement  System  of  Alaska  to  contribute  to  the                                                                    
     system an  amount calculated by  applying a rate  of 22                                                                    
     percent of the  total of all base salaries  paid by the                                                                    
     municipality to  employees of the municipality  who are                                                                    
     active members  of the system during  a payroll period;                                                                    
     authorizing  the administrator  of the  defined benefit                                                                    
     retirement  plan of  the  Public Employees'  Retirement                                                                    
     System  of  Alaska  to  reduce  the  rate  of  interest                                                                    
     payable by  certain municipalities that  are delinquent                                                                    
     in transmitting employee  and employer contributions to                                                                    
     the  retirement plan;  and providing  for an  effective                                                                    
9:49:16 AM                                                                                                                    
Co-Chair MacKinnon  offered a brief  history of the  bill in                                                                    
REPRESENTATIVE NEAL  FOSTER, SPONSOR,  stated that  the bill                                                                    
would  provide relief  for communities  that  paid into  the                                                                    
PERS  system  and had  lost  more  than  25 percent  of  its                                                                    
population since  the last census.  He said that  the relief                                                                    
would be provided by resetting  the minimum payments for the                                                                    
2008 salary  levels to the  2012 salary levels. He  used the                                                                    
example  of  Galena,  which  had  lost  30  percent  of  its                                                                    
population,  reflected  in  the  last  census,  due  to  the                                                                    
closure   of   the   Air  Force   base.   He   shared   that                                                                    
municipalities had to pay into  the PERS system based on one                                                                    
of  two  alternatives:  an amount  based  on  their  current                                                                    
salary level or  an amount based on what  their salary level                                                                    
was  in 2008,  referred to  as  the 2008  salary floor.  The                                                                    
floor was established when  the legislature polled municipal                                                                    
PERS systems  in 2008 and  existed under the  rationale that                                                                    
local  governments usually  grew rather  than shrinking.  He                                                                    
explained  that the  problem  in Galena  had  been that  the                                                                    
salary  level  had  shrunk  from $1.5  million  in  2008  to                                                                    
$770,000  in  2012. According  to  the  PERS system,  Galena                                                                    
still had  to make contributions  into the PES system  as if                                                                    
it had  a $1.5  million workforce.  He lamented  that Galena                                                                    
did  not  have the  resources  to  pay into  the  retirement                                                                    
system  for  workers  that  they  did  not  have  and  could                                                                    
continue to  let their  PERS bill grow  or close  their city                                                                    
office. He  hoped that  the bill  could foster  a compromise                                                                    
that would provide Galena with some relief.                                                                                     
9:53:00 AM                                                                                                                    
PAUL  LABOLLE,  STAFF,  REPRESENTATIVE NEAL  FOSTER,  stated                                                                    
that  the reason  for Galena's  shrinking workforce  was the                                                                    
removal of  the Air Force  Base. He informed that  state law                                                                    
did not  allow for bankruptcy for  municipalities, nor could                                                                    
cities dissolve  unless debts were  paid, which  would leave                                                                    
the state  responsible for the  unfunded liability  the city                                                                    
had amassed.                                                                                                                    
Senator Stevens  asked whether any other  communities in the                                                                    
state  faced  similar problems  and  whether  there was  any                                                                    
assistance  from the  military  when  communities faced  the                                                                    
closure of a base.                                                                                                              
Mr.  LaBolle stated  that there  were five  communities that                                                                    
fit  the definition  of population  loss as  defined by  the                                                                    
bill. He  listed Pelican,  St. George,  and Galena  as three                                                                    
that were  affected. He  said that when  the Air  Force base                                                                    
moved out of Galena assets had been left with the city.                                                                         
9:55:19 AM                                                                                                                    
Senator von Imhof found the legislation compelling.                                                                             
9:56:35 AM                                                                                                                    
Co-Chair  MacKinnon  pondered  the   economic  impact  on  a                                                                    
community  losing  a  military  installation.  She  wondered                                                                    
whether there  could be any  help on the federal  level. She                                                                    
asked whether  termination studies had been  done for Galena                                                                    
to determine the total liability.                                                                                               
Representative Foster  addressed how the  federal government                                                                    
had been  involved in  Galena. He noted  that the  Air Force                                                                    
had left over  1 million gallons of heating  fuel, which was                                                                    
now largely gone. He said  that no other financial resources                                                                    
had been bestowed on the community.                                                                                             
Co-Chair MacKinnon wondered about  the fairness issue of the                                                                    
state picking  up the cost  for this small  community verses                                                                    
Mr.  LaBolle stated  that Galena  had  not done  termination                                                                    
studies.  He  said  that  SB  25  had  two  components:  the                                                                    
termination  studies   and  the   2008  floor.   Galena  was                                                                    
currently only  affected by  the floor.  He shared  that the                                                                    
total debt,  to date, was  $1.5 million; changing  the floor                                                                    
would  bring  their minimum  payment  to  $775 thousand.  He                                                                    
added that  the payroll had  grown to just over  $1 million,                                                                    
with the 2008 floor of $1.5 million.                                                                                            
Co-Chair  MacKinnon observed  that the  state would  pick up                                                                    
the   difference   of   approximately   $133   thousand   in                                                                    
Mr. LaBolle deferred to the Legislative Finance Division.                                                                       
10:00:31 AM                                                                                                                   
Senator Olson wondered whether there  was an alternative way                                                                    
to keep the city functioning if the bill did not pass.                                                                          
Representative   Foster  replied   that   he   knew  of   no                                                                    
alternative.  He noted  that  the  Galena Interior  Learning                                                                    
Academy  was  an  asset  and  a hub  in  the  community  and                                                                    
coordinated  work on  renewable energy  and water  and sewer                                                                    
issues.  He   reiterated  that   there  were   no  immediate                                                                    
alternatives to the city office.                                                                                                
Senator Olson thought  the importance of the  city office in                                                                    
Galena was sizable.                                                                                                             
10:02:25 AM                                                                                                                   
Vice-Chair Bishop  commented it was still  unknown where the                                                                    
employees  from  Galena  had  gone  and  whether  they  were                                                                    
working in another PERS system.  He noted that the school in                                                                    
Galena had a 100 percent graduation rate.                                                                                       
10:03:11 AM                                                                                                                   
Senator Stevens asked about what  happened if the population                                                                    
returned to prior levels.                                                                                                       
Mr. LaBolle  stated that  if the  population grew  and there                                                                    
was  a corresponding  growth  in  municipal government,  the                                                                    
actuals would be paid versus the floor.                                                                                         
Senator von Imhof  asked about the total  population for the                                                                    
three towns.                                                                                                                    
10:03:55 AM                                                                                                                   
AT EASE                                                                                                                         
10:05:30 AM                                                                                                                   
Mr.  LaBolle  relayed  the  populations  for  the  following                                                                    
Anderson: 246                                                                                                                   
Atka: 61                                                                                                                        
Galena: 470                                                                                                                     
Pelican: 88                                                                                                                     
St. George 102                                                                                                                  
Senator von Imhof  pointed out that Pelican  had an employer                                                                    
number of 200.                                                                                                                  
Mr.  LaBolle  stated   that  the  number  was   a  code  for                                                                    
identifying the positions.                                                                                                      
Senator  von Imhof  referenced communities  with percentages                                                                    
under 25.  She asked  whether the  sponsor had  considered a                                                                    
rubric  with  which  to   evaluate  communities  that  would                                                                    
benefit  from  the state's  relief.  She  considered how  to                                                                    
afford the  implementation over  the long-term,  and whether                                                                    
there were  multiple funding sources. She  urged the sponsor                                                                    
to develop a rubric.                                                                                                            
10:08:09 AM                                                                                                                   
Co-Chair  MacKinnon  asked  about  the  population  size  of                                                                    
Senator  Stevens replied  that that  population of  Anderson                                                                    
was 246.                                                                                                                        
Co-Chair  MacKinnon corrected  her precious  statement about                                                                    
the fiscal note and what  the state would owe in perpetuity.                                                                    
She corrected that  the fiscal note reflected  a timespan of                                                                    
20  years  to   pay  down  the  interest   and  the  current                                                                    
obligation. She  noted that there  was a defined end  to the                                                                    
contributions.  She added  that the  contributions that  the                                                                    
cities had to make were effected  by the size of the payroll                                                                    
and not necessarily  the number of employees.  She felt that                                                                    
it was important  to understand the employee  change in each                                                                    
community  versus   the  population  drop.   She  reiterated                                                                    
previous  testimony  that  the   population  in  Galena  had                                                                    
dropped  30  percent  and  that there  was  a  $1.5  million                                                                    
payroll in 2008.                                                                                                                
Mr. LaBolle affirmed the numbers were correct.                                                                                  
Co-Chair MacKinnon  continued that the $1.5  million payroll                                                                    
of Galena had been reduced by half to $750,000 in 2012.                                                                         
Mr. LaBolle answered in the affirmative.                                                                                        
Co-Chair MacKinnon  thought that in considering  the bill it                                                                    
was important  to recognize the payroll  numbers and whether                                                                    
the state  government grew or  declined. She  reiterated the                                                                    
need for a termination liability  study of the system at the                                                                    
current  payroll.  She  referenced  the  fiscal  note  which                                                                    
reflected  expected  small  increases   to  the  payroll  in                                                                    
Galena. She  spoke to  the effective  date written  into the                                                                    
bill,  which would  alleviate the  cities contributions  for                                                                    
2017,  and make  that a  state responsibility  with the  new                                                                    
floor. This  required a supplemental request  of $148,000 in                                                                    
addition to the $141,000 of reoccurring operating costs.                                                                        
10:13:01 AM                                                                                                                   
Senator Micciche  wondered what the  effect would be  if the                                                                    
$148,000 was  amortized in future  years rather  than placed                                                                    
in the supplemental budget.                                                                                                     
Co-Chair  MacKinnon said  that if  the supplemental  was not                                                                    
provided there could be a  shortfall in the calculation that                                                                    
could  hit the  state differently  on the  retirement system                                                                    
and  the  state's  obligation.   She  thought  that  if  the                                                                    
supplemental was not  going to pass then  the effective date                                                                    
would need to be changed,  which would affect the fiscal not                                                                    
on  the reoccurring  operating cost  line, or  the liability                                                                    
would go up and local  communities would experience a higher                                                                    
interest rate over the amortization period.                                                                                     
Ms. Lea agreed with that assessment.                                                                                            
Co-Chair MacKinnon concluded that  the bill would positively                                                                    
impact  affected  cities  because  they would  not  owe  the                                                                    
additional  contribution or  the  interest  payments to  the                                                                    
state - even though the fiscal year was nearly at an end.                                                                       
10:14:29 AM                                                                                                                   
Mr.  LaBolle  added  that the  existing  liability  of  $1.5                                                                    
million  would remain  on  the books  after  passage of  the                                                                    
Co-Chair MacKinnon countered that  the fiscal note showed an                                                                    
outstanding  liability  of  $1,099,633.35 from  Galena.  She                                                                    
believed that the issue merited further discussion.                                                                             
10:15:14 AM                                                                                                                   
Mr.  LaBolle  said that  Section  1  of the  bill  contained                                                                    
enabling  language  that  corresponded   to  Section  4.  He                                                                    
addressed the Section  2, where the 2008  floor was adjusted                                                                    
to establish  a new  floor for  the effected  communities of                                                                    
FY12. He spoke to Section 2, subsection (B):                                                                                    
     (B) June 30, 2012, if that total is less than the                                                                          
     total under                                                                                                                
     (A)  of   this  paragraph,   and  the  employer   is  a                                                                    
     municipality in which the  population decreased by more                                                                    
     than  25 percent  between 2000  and 2010,  according to                                                                    
     the  decennial census  conducted by  the United  States                                                                    
     Bureau of the Census.                                                                                                      
Mr.  LaBolle relayed  that  Section  3 contained  conforming                                                                    
language. He  said that Section  4 would allow for  the PERS                                                                    
administrator to negotiate the  delinquent interest rate. He                                                                    
furthered  that  bill  would  allow  the  administration  to                                                                    
negotiate  an  interest  rate for  delinquent  payments.  He                                                                    
concluded that Section 5 was the effective date.                                                                                
10:17:10 AM                                                                                                                   
Co-Chair MacKinnon OPENED public testimony.                                                                                     
JOHN   KORTA,   MAYOR,   CITY   OF   GALENA,   GALENA   (via                                                                    
teleconference),  testified  in  support  of  the  bill.  He                                                                    
discussed the closure of the  Air Force base, which had been                                                                    
a significant source of employment  for Galena residents. He                                                                    
said that  in 2000, Galena  had 675 residents, 470  in 2010,                                                                    
resulting in  the 30 percent  decline. He furthered  that in                                                                    
2013, ice  dammed the  Yukon River, which  led to  a federal                                                                    
disaster  declaration. He  relayed that  the 2008  floor had                                                                    
been established  to prevent a municipality  from gaming the                                                                    
PERS  system  by contracting  out  work  previously done  by                                                                    
municipal  employees,  in  order  to  avoid  making  ongoing                                                                    
contributions to  PERS. He related that  the current minimum                                                                    
PERS contribution  was based on  2008 salaries, the  law had                                                                    
not accounted for Galena's unexpected  situation and had not                                                                    
contemplated    municipalities   with    sharply   declining                                                                    
populations. He stated that HB  47 only affected communities                                                                    
that  faced  a  minimum  25 percent  decline  in  population                                                                    
between  2000 and  2010.  He asserted  that  the bill  would                                                                    
simply  replace  the 2008  floor  with  the 2012  floor.  He                                                                    
stated that Galena was  currently paying contributions based                                                                    
on   the  2008   floor,  which   represented  a   population                                                                    
substantially   larger  than   the  actual   population.  He                                                                    
lamented   that  the   cities  required   PERS  contribution                                                                    
approached  half od  the cities  entire current  payroll. He                                                                    
shared  that the  FY08 salary  total had  been $1,513.365.19                                                                    
for  36 employees,  making  their  annual PERS  contribution                                                                    
$332,940. In  FY 12,  Galena's payroll  was $765,776  for 17                                                                    
employees. He reiterated that under  the current 2008 floor,                                                                    
Galena's annual minimum contribution  was over half of their                                                                    
entire  payroll costs.  He  warned that  if  action was  not                                                                    
taken, the  differential would continue  to create  an ever-                                                                    
increasing   obligation.  He   stressed   that  the   cities                                                                    
financially situation  was so  severe that in  FY 11,  a low                                                                    
interest loan  from the Alaska  Bond Bank had to  be secured                                                                    
for heat and electricity in the city.                                                                                           
10:21:19 AM                                                                                                                   
Mr.  Korta  continued  that  HB 47  did  not  undermine  the                                                                    
underlying policy  goals of the existing  PERS structure but                                                                    
helped   ensure  that   municipalities   remained  able   to                                                                    
contribute to  PERS, while recognizing  that the  city could                                                                    
not make  a contribution  based on  a larger  population. He                                                                    
noted that  Galena had continued  to pay 100 percent  of its                                                                    
annual  obligation of  22  percent to  PERS  for its  actual                                                                    
10:24:06 AM                                                                                                                   
Co-Chair  MacKinnon  asked  the   testifier  to  submit  any                                                                    
written testimony.                                                                                                              
Co-Chair  Hoffman asked  about the  status of  the municipal                                                                    
bond bank loan taken out in 2011 to pay for fuel.                                                                               
Mr.  Korta  estimated that  the  loan  balance was  over  $1                                                                    
million. He said that all payments had been made on time.                                                                       
Co-Chair  Hoffman asked  how long  the  borrowed $1  million                                                                    
from the  bond bank  had been  expected to  last to  pay for                                                                    
heating fuel and electricity.                                                                                                   
Mr. Korta stated that the  city had to do some restructuring                                                                    
after the closure of the  base, which he believed was closer                                                                    
to $2  million. He  said that  the city  had paid  down that                                                                    
obligation and had stabilized since the restructure.                                                                            
Co-Chair Hoffman  asked whether the community  of Galena had                                                                    
an annual audit.                                                                                                                
Mr. Korta answered in the affirmative.                                                                                          
Co-Chair  Hoffman asked  that the  last 3  years' audits  be                                                                    
made available to the committee.                                                                                                
10:26:03 AM                                                                                                                   
Senator  von Imhof  looked at  the city  manager's testimony                                                                    
(copy on  file). She indicated  that the salary in  2008 was                                                                    
approximately  $1.5  million, and  the  salary  in 2012  was                                                                    
about $765,000;  yet both years  the city had paid  the same                                                                    
PERS  contribution of  $332,000 for  both years  despite the                                                                    
salaries going down by half.                                                                                                    
Mr. Korta agreed.                                                                                                               
Co-Chair MacKinnon asked whether  the contributions had been                                                                    
paid or owed.                                                                                                                   
Mr.  Korta replied  that  the city  had  been paying  actual                                                                    
contributions but not paying on the accruing interest.                                                                          
Senator von  Imhof asked whether  the $332,000  included the                                                                    
accruing interest.                                                                                                              
Mr. Korta deferred to the city manager.                                                                                         
Senator von  Imhof understood that  under a  hypothetical in                                                                    
the letter,  the actual payroll  should have  been $164,000,                                                                    
with a difference of $150,000.                                                                                                  
Co-Chair MacKinnon thought that  without a termination study                                                                    
to reduce  and pay to the  plan the amount owed  to a person                                                                    
who retired, Senator  von Imhof was correct.  She thought it                                                                    
was  accurate  when Vice-Chair  Bishop  stated  that if  the                                                                    
employees  moved  to  another state  system,  the  employees                                                                    
would continue to contribute to costs in the state system.                                                                      
10:29:14 AM                                                                                                                   
KATHIE  WASSERMAN,  EXECUTIVE   DIRECTOR,  ALASKA  MUNICIPAL                                                                    
LEAGUE,  testified  in  support   of  the  legislation.  She                                                                    
informed  that that  league had  been working  on retirement                                                                    
termination studies  and below the  floor costs since  SB 25                                                                    
went into  effect in  2008. She  asserted that  many smaller                                                                    
committees  in   the  legislature   did  not  have   a  full                                                                    
understating of PERS issues,  which made passing legislation                                                                    
difficult. She said that when  she was mayor of Pelican, and                                                                    
the  population had  dropped, the  community  had lost  many                                                                    
people from  all areas of  the workforce. She  lamented that                                                                    
the state  could only expect  so much from  communities with                                                                    
no money and no tax base.                                                                                                       
10:32:53 AM                                                                                                                   
Co-Chair MacKinnon CLOSED public testimony.                                                                                     
Senator  Micciche   requested  the  audit   information  and                                                                    
information on the city's tax base.                                                                                             
Mr. Korta replied  that he would need a  physical address to                                                                    
send the information to.                                                                                                        
Co-Chair MacKinnon provided the address.                                                                                        
Co-Chair MacKinnon  stated that proposed amendments  due the                                                                    
following day at noon.                                                                                                          
HB  47  was   HEARD  and  HELD  in   committee  for  further                                                                    
CS FOR HOUSE BILL NO. 217(FIN)                                                                                                
     "An Act relating to civil  liability for risks inherent                                                                    
     in farm  touring; relating to  the state  and municipal                                                                    
     procurement   preferences  for   agricultural  products                                                                    
     harvested   in  the   state   and  fisheries   products                                                                    
     harvested  or  processed  in  the  state;  relating  to                                                                    
     merchandise sold and certain  fees charged or collected                                                                    
     by the  Department of Natural Resources;  and providing                                                                    
     for an effective date."                                                                                                    
10:34:29 AM                                                                                                                   
REPRESENTATIVE  GERAN TARR,  SPONSOR,  believed that  issues                                                                    
related to  agriculture were important in  discussions about                                                                    
diversifying  the state's  economy.  She offered  background                                                                    
information from the Sponsor Statement:                                                                                         
     More  than  95%  of  Alaska's  food  is  imported,  yet                                                                    
     farmers in  Alaska are ready and  motivated to increase                                                                    
     production. From  2007 to 2012, direct  sales in Alaska                                                                    
     grew by 32% - 13 times the national average.                                                                               
     In 2017,  the Farm  Bureau and Division  of Agriculture                                                                    
     launched  a  statewide   campaign  to  encourage  every                                                                    
     Alaskan  to   spend  just   $5/week  on   Alaska  Grown                                                                    
     products,  year-round,  to  generate $188  million  for                                                                    
     Alaska's economy.                                                                                                          
     Retailers include  Carrs-Safeway, Walmart,  Fred Meyer,                                                                    
     and  Save-U-More. With  expectations of  further market                                                                    
     growth  in  2018,  Bell's  Nursery  plans  to  increase                                                                    
     production of tomatoes and cucumbers  by 20 percent and                                                                    
     the  Alaska   Flour  Company   added  products   to  23                                                                    
     additional retailers throughout the state.                                                                                 
     Alaska's farmers markets are  also growing. In 2005 the                                                                    
     Division of  Agriculture listed  13 markets  in Alaska.                                                                    
     In  2014 that  number grew  to 37,  and in  2017, there                                                                    
     were  41, with  more in  planning stages.  Market sales                                                                    
          ? Tanana Valley Farmers Market (Fairbanks) -                                                                          
          $1.25 million                                                                                                         
         ? Homer Farmers Market (Homer)- $500,000                                                                               
          ? Kodiak Farmers Market (Kodiak) - $100,000                                                                           
          ? Mountain View Farmers Market (neighborhood                                                                          
          market in Anchorage) - $19,000                                                                                        
Representative Tarr  discussed the genesis of  the bill. She                                                                    
said  that the  effort was  to increase  direct producer  to                                                                    
consumer sales, eliminating  the need for a  middle man. She                                                                    
shared  that the  Department  of Environmental  Conservation                                                                    
was working  with farmers  on a  pilot program  for expanded                                                                    
sales of cottage food products online.                                                                                          
Representative Tarr  stated that  as the  bill transitioned,                                                                    
short term  policy changes that  would benefit  farmers came                                                                    
to  light.  She  discussed  the receipt  authority  for  the                                                                    
Department of Natural  Resources to collect the  fee for the                                                                    
promotional use  of the "Alaska  Grown" logo.  She explained                                                                    
that the department would buy  more promotional Alaska Grown                                                                    
materials  wholesale and  then distribute  them to  farmers.                                                                    
She added  that the department would  reinvest proceeds from                                                                    
the materials into the Alaska Grown program.                                                                                    
Representative  Tarr discussed  procurement,  which she  had                                                                    
worked on  for four years.  She spoke of the  Alaska Product                                                                    
Procurement  Preference  statue,  which said  that  a  state                                                                    
procurement officer  buying food  product would  be directed                                                                    
to buy  the lowest priced  product but  could spend up  to 7                                                                    
percent  more on  Alaskan products.  She said  that she  had                                                                    
requested  an  audit  of  the  statute  in  order  to  fully                                                                    
evaluate the effectiveness of the  statute. She relayed that                                                                    
the audit  revealed several  challenges: the  price problem,                                                                    
getting  farmers  on the  preferred  vendors  list, and  not                                                                    
having  enough seasonal  availability. She  shared that  the                                                                    
bill added "may  spend" up to 15 percent.  She stressed that                                                                    
the bill did not require  additional spending but would make                                                                    
purchasing Alaskan grown products easier.                                                                                       
10:40:49 AM                                                                                                                   
Representative  Tarr used  the example  of an  anchor tenant                                                                    
and smaller  shops in a  mall environment. She said  that if                                                                    
farmers  had a  solid wholesale  opportunity, they  would be                                                                    
more likely to  sell at a less than retail  price because of                                                                    
the size  of the contract.  She asserted that  farmers would                                                                    
grow  more if  they  had assurance  that  their goods  would                                                                    
sell.  She  believed  that  the   bill  would  open  greater                                                                    
opportunities  for  Alaskan  farmers and  would  keep  state                                                                    
dollars in-state. She relayed that  there was a new trend in                                                                    
farm touring and believed that  Alaskan could cash in on the                                                                    
activity. She stated that farm  tour language had been added                                                                    
to statute, with protections form civil liability.                                                                              
10:44:19 AM                                                                                                                   
Representative Tarr thought that the activities listed in                                                                       
the bill were low risk for farmers.                                                                                             
10:45:05 AM                                                                                                                   
DIANA RHODES, STAFF, REPRESENTATIVE GERAN TARR, addressed                                                                       
the Sectional Analysis (copy on file):                                                                                          
     Section 1 Amends powers of Commissioner of Department                                                                    
     of Natural Resources to sell promotional merchandise                                                                     
     related to the Alaska Grown logo                                                                                         
          Allows  the  Division  of Agriculture  within  the                                                                    
          Department  of   Natural  Resources  to   issue  a                                                                    
          license and charge  a license fee for  the sale of                                                                    
          promotional merchandise related to the                                                                                
          Alaska  Grown logo.  The commissioner  shall price                                                                    
          the  merchandise  in  a   manner  that  ensures  a                                                                    
          reasonable  monetary return  to the  state. It  is                                                                    
          encouraged  that the  merchandise be  manufactured                                                                    
          in the  US and is  procured from either  an Alaska                                                                    
          bidder  or a  person  that  employs Alaska  prison                                                                    
     Section 2  Amends Alaska Code of Civic Procedures,                                                                       
     under the section of civil liability for sports and                                                                      
     recreation activities                                                                                                    
          Provides  more  freedom  from civil  liability  to                                                                    
          farmers who operate "farm tours"                                                                                      
     Section 3  Defines farm touring                                                                                          
          Farm  touring means  briefly  visiting  a farm  to                                                                    
          observe   or   experience  aspects   of   raising,                                                                    
          growing,  producing,  cultivating, harvesting,  or                                                                    
          processing an  agricultural product as  a tourist,                                                                    
          without receiving pay.                                                                                                
     Sections 4 to 7  Amends multiple sections of existing                                                                    
     statutes providing for the solicitation and purchasing                                                                   
     of Alaska Grown agricultural and seafood products                                                                        
          There currently  exists a seven percent  state and                                                                    
          municipal  preference  procurement preference  for                                                                    
          Alaska  Grown agricultural  products harvested  in                                                                    
          the state and Alaska                                                                                                  
          Grown  fisheries products  harvested or  processed                                                                    
          in  the  state;  this would  give  flexibility  to                                                                    
          purchase  fisheries  and agriculture  products  if                                                                    
          priced not  more than 15  percent above  a similar                                                                    
          product   harvested   outside  the   state   (This                                                                    
          includes  entities   that  receive   state  money,                                                                    
          including school districts and the university).                                                                       
     Section 8  Amends Public Finance Fiscal Procedures                                                                       
     Act to collect fees                                                                                                      
          Allows  the  Commissioner  of  the  Department  of                                                                    
          Natural Resources to collect fees for                                                                                 
          Alaska Grown promotional merchandise.                                                                                 
     Section 9  Effective date for the "farm touring" is                                                                      
     after January 1, 2019.                                                                                                   
     Section 10  Effective date of the bill is July 1,                                                                        
10:46:50 AM                                                                                                                   
Vice-Chair Bishop commented on  the importance of supporting                                                                    
in-state  agriculture. In  1950, Alaska  grew 55  percent of                                                                    
its food. He  discussed food security and  the importance of                                                                    
being  prepared  for  emergencies.  He  noted  that  Alaskan                                                                    
products   had  a   greater  shelf-life   than  out-of-state                                                                    
Senator Stevens  commented on  seafood products.  He thought                                                                    
that similar  interest should be  taken in the  marketing of                                                                    
seafood products.                                                                                                               
10:49:09 AM                                                                                                                   
Co-Chair MacKinnon OPENED public testimony.                                                                                     
AMY    SEITZ,   ALASKA    FARM    BUREAU,   SOLDOTNA    (via                                                                    
teleconference),  testified  in  support of  the  bill.  She                                                                    
echoed the  comments of Vice-Chair Bishop  on food security.                                                                    
She believed that the agriculture  industry in the state was                                                                    
young  and needed  to  build  infrastructure and  supporting                                                                    
policy.  She lamented  that 95  percent of  the food  in the                                                                    
state  was  imported form  other  states  and countries  and                                                                    
there was  only a 3  to 5-day supply  of most food  items on                                                                    
grocery  store shelves.  She  remarked  on language  removed                                                                    
from the bill  related to cottage foods  industry. She hoped                                                                    
to  work with  Department of  Environmental Conservation  on                                                                    
the items that had been removed  to the bill. She hoped that                                                                    
the bill would give farmers  more opportunity in the product                                                                    
preference  program. She  discussed  receipt authority.  She                                                                    
thought that the  if fees could be collected  for the Alaska                                                                    
Grown  marketing items  it would  help  farmers to  indicate                                                                    
that  products  were  Alaskan grown,  while  supporting  the                                                                    
Division of  Agriculture. She highlighted the  importance of                                                                    
public  outreach for  Alaskan grown  products. She  hoped to                                                                    
increase the incentives for the  State Procurement Office to                                                                    
buy Alaska grown  and to develop enticement  language to get                                                                    
wholesalers to buy Alaskan grown products.                                                                                      
10:54:36 AM                                                                                                                   
Ms. Seitz concluded that protecting  farmers, who offer farm                                                                    
tours, from liability should be a priority.                                                                                     
10:55:15 AM                                                                                                                   
Co-Chair MacKinnon CLOSED public testimony.                                                                                     
CSHB 217(FIN)  was HEARD and  HELD in committee  for further                                                                    
Co-Chair MacKinnon  announced that  amendments were  due the                                                                    
following day at noon.                                                                                                          
Co-Chair MacKinnon discussed the agenda for the afternoon.                                                                      
10:56:20 AM                                                                                                                   
The meeting was adjourned at 10:56 a.m.                                                                                         

Document Name Date/Time Subjects
CSHB217 Supporting Document - Benefits of Farmers Markets 2017.pdf SFIN 4/25/2018 9:00:00 AM
HB 217
HB 217 CS Ver J Supporting Document Farm Bureau Support 2.8.18.pdf SFIN 4/25/2018 9:00:00 AM
HB 217
HB 217 Alaska Grown Sponsor Statement 4.5.18.pdf SFIN 4/25/2018 9:00:00 AM
HB 217
HB 217 Supporting Document - Oceanside Farms 4-2-18.pdf SFIN 4/25/2018 9:00:00 AM
HB 217
HB 217 Signed waiver from Senate Resources 4.17.18.pdf SFIN 4/25/2018 9:00:00 AM
HB 217
HB 217 Summary of Changes Version O to I 4.13.18.pdf SFIN 4/25/2018 9:00:00 AM
HB 217
HB 217 Version I Sectional Analysis 4.13.18.pdf SFIN 4/25/2018 9:00:00 AM
HB 217
HB217 Supporting Document - Homer Farmers Market.pdf SFIN 4/25/2018 9:00:00 AM
HB 217
HB 217 Supporting letter Farm Bureau 4.14.18.pdf SFIN 4/25/2018 9:00:00 AM
HB 217
HB47 DOA Documents.pdf SFIN 4/25/2018 9:00:00 AM
HB 47
HB47 Letters of Support.pdf SFIN 4/25/2018 9:00:00 AM
HB 47
HB47 Sponsor Statement.pdf SFIN 4/25/2018 9:00:00 AM
HB 47
HB 306 01.23.18 Speaker Edgmon Transmittal Letter PERS & TRS.PDF SFIN 4/25/2018 9:00:00 AM
HB 306
HB 306 Sectional Analysis.pdf SFIN 4/25/2018 9:00:00 AM
HB 306