Legislature(2019 - 2020)SENATE FINANCE 532
02/05/2019 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: Savings Accounts and Budget Reserves | |
| Presenatation: Negotiated Labor Contracts | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE FINANCE COMMITTEE
February 5, 2019
9:02 a.m.
9:02:05 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:02 a.m.
MEMBERS PRESENT
Senator Natasha von Imhof, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Click Bishop
Senator Peter Micciche
Senator Donny Olson
Senator Mike Shower
Senator Bill Wielechowski
Senator David Wilson
MEMBERS ABSENT
Senator Lyman Hoffman
ALSO PRESENT
Senator Cathy Giessel; Pam Leary, Director, Treasury
Division, Department of Revenue; Kate Sheehan, Director of
Personnel and Labor Relations, Department of
Administration.
SUMMARY
PRESENTATION: SAVINGS ACCOUNTS and BUDGET RESERVES
PRESENATATION: NEGOTIATED LABOR CONTRACTS
Co-Chair Stedman reminded attendees to silence their cell
phones. He reviewed the agenda for the day.
Co-Chair Stedman highlighted that the committee had updated
slides from the previous day's presentation by Deven
Mitchell, Executive Director, Alaska Municipal Bond Bank
Authority, Department of Revenue (copy on file). He
explained that there was a request to add the statutory
dividend under cash availability on slide 4. He noted the
slide on page 12 provided a further look-back on the
state's savings accounts, the Constitutional Budget Reserve
(CBR), and the Statutory Budget Reserve (SBR). He explained
that to draw from either account a vote was needed. The
Constitutional Budget Reserve required a two-thirds
majority vote, and the SBR required a simple majority vote.
Historical data was added to the year 2000. Page 20 of the
previous presentation was also updated to reflect
historical data to the year 2000. He did not think the
slide was difficult to read. The committee requested more
readable graphs that also included the PERS/TRS payments.
He wanted to have a clear picture of the state's total debt
service. He indicated members should see something in their
inboxes shortly.
Co-Chair Stedman recognized that Senator Cathy Giessel had
joined the meeting.
^PRESENTATION: SAVINGS ACCOUNTS and BUDGET RESERVES
9:06:00 AM
PAM LEARY, DIRECTOR, TREASURY DIVISION, DEPARTMENT OF
REVENUE, discussed her background. She had started as an
accountant at Price Waterhouse. She climbed the ranks and
finished her career there as a partner in the combined firm
of Price Waterhouse Coopers. She traveled around and ended
up in Juneau, Alaska. She performed a number of jobs until
she returned to her roots as an accountant with the Alaska
Permanent Fund Corporation (APFC) for a short time before
being recruited into the Department of Revenue (DOR) as the
Comptroller. In 2014, she became the director.
Ms. Leary stated she would give a brief overview of the
Treasury Division and talk about the state's key investment
funds including the savings accounts. She reported that the
Treasury Division provided debt management, cash
management, unclaimed property management, in addition to
investment and portfolio management services for the 5
funds she would address in her presentation: the state's
general fund (GEFONSI), the CBR fund, the Public School
Trust fund, the Power Cost Equalization fund, and the
retirement funds. The division also managed numerous other
funds and their investments.
Ms. Leary noted that the division also provided staff to
the Alaska Retirement Management Board (ARMB) and the
Alaska Municipal Bond Bank Authority. The division
currently had 45 treasury staff. About 80 percent of them
touched investments in some capacity whether actually doing
the investing, accounting for them, ensuring that the
state's investment policies were in compliance, or handling
cash management which allowed the state to know how much
money there was at the beginning or end of each day for
each investment.
Ms. Leary noted that on 12/31/18 the state had $38.8
billion assets dispersed in 45 separate accounts that were
managed. She indicated that 14 accounts were in the Defined
Benefit funds under the ARMB. There were 4 participant-
directed funds which were the defined contribution plans,
the supplemental benefits, and the deferred compensation
funds - also under the fiduciary of the ARMB. The division
had 25 funds under the direction of the commissioner of
revenue. There were 2 funds for other state fiduciaries:
The Exxon Valdez Oil Spill Settlement (EVOSS) fund, and the
Alaska Mental Health Trust. The accounts were managed in a
pooled environment, an efficient way of managing
investments. She relayed that pools were similar to
building blocks; the state could invest 20 percent of one
pool and 30 percent from another. It was an easy way to
allocate funds.
Ms. Leary continued that for state assets there were 6
pools that funds could invest in. She indicated there were
23 investment pools for the ARMB assets and rolled up to 6
asset classes that the defined benefits plans could invest
in.
9:09:17 AM
Senator Wielechowski wondered why the state would not have
the APFC manage the assets listed by Ms. Leary for the sake
of efficiency.
Ms. Leary stipulated that each of the managed funds had
specific time horizons and risk challenges or appetites.
Certain funds required separate allocations. She understood
the APFC to have only one asset allocation which might not
be an appropriate asset allocation for some of the funds
managed at the state treasury.
Co-Chair von Imhof thought the statistics Ms. Leary had
provided were useful. She wondered if the department could
provide a list of the funds or a summary of the information
Ms. Leary had just provided.
Co-Chair Stedman suggested that Ms. Leary could come back
to the committee with a list of assets under management and
their categories.
Ms. Leary agreed to provide the information. She noted that
the division website identified all the funds she had
mentioned and how they were structured.
Senator Olson asked about the rate of return and investment
outcomes and how they compared with that of the Permanent
Fund.
Ms. Leary agreed to provide the information. Some of the
information would be presented in the current slide pack.
Ms. Leary stated that in terms of process, the APFC had
already provided a presentation to the committee.
Therefore, she would not go through a detailed process but
there was a similar function. She explained that annually
or as needed, for state assets the commissioner of revenue,
as fiduciary, would sit down with the chief investment
officer as well as the staff to determine asset allocations
for each fund. Consideration was given to the type and use
of the fund, how long the fund was expected to be invested,
and what type of risk each fund could take. She noted that
the division used Callan and Associates capital market
assumptions to develop some of the asset allocation
possibilities discussed with the fiduciaries. It was the
same process with the ARMB. Generally, in June of each year
the annual asset allocation was adopted. She reiterated
that asset allocations could change depending on
circumstances and a fiduciary's desire.
9:12:51 AM
Ms. Leary spoke to the presentation "State of Alaska Update
on the State's Investment Funds" (copy on file). She began
with slide 2: "General Fund and other non-segregated
investments Historical Invested Assets (in billions)." She
explained that the GEFONSI was created around statehood and
held the cash and investments of the government funds. As
more funds were added through the legislature, it became
necessary to separate the funds into their own accounts. In
1992 the GEFONSI pool was created and was a way of
investing all of the smaller funds together along with the
general fund proper. The general fund proper was what she
referred to as the state's operating account. It was where
all of the money came in and out of the state. The
Department of Administration (DOA) in their finance
division separately accounted for each of the funds within
the state accounting system. The Department of Revenue,
Division of Treasury, was responsible for investing the
DEFONSI in calculating and allocating daily investment
earnings to each of the funds.
Ms. Leary continued that there were 180 funds categorized
as Type I, Type II, or Type III. The Type I assets were
those that were given their earnings by statute or other
law. Type II and Type III were not generally getting their
earnings. Type III never received their earnings from the
legislature. However, Type II might get their earnings from
the legislature if it chose to appropriate the monies in
any given year.
Ms. Leary continued to address slide 2. She relayed that in
2018 the state took a portion of the GEFONSI funds and
created a GEFONSI II fund. The funds in the GEFONSI II were
Type II and Type III funds that did not get their earnings.
There was a mechanism by which the division was able to
increase the target rate of return and risk allocation for
assets that did not get their earnings. Essentially there
was less risk to those assets.
9:15:30 AM
Ms. Leary spoke to slide 3: "General Fund and other non-
segregated investments (GeFONSI I & II) - Fiduciary
oversight: Commissioner of Revenue," which showed the
statistics of the GEFONSI I and GEFONSI II assets. The
investment objective, the target asset allocation, the
market value, and the returns as of December 31, 2018 were
included on the slide. She pointed out that the GEFONSI I
had a short to intermediate investment horizon with
moderate risk and had a target allocation that had
primarily shorter term fixed income assets. She reported
that the GEFONSI II had a moderately high risk appetite and
was invested with an intermediate horizon and longer assets
in the fund. She highlighted the pie chart showing some
equity and international equity as part of the GEFONSI II
investment allocation.
She moved to the bottom of the slide listing Callan
projected 10 year returns. The division used the 10 year
market presumptions that Callan provided. Based on the
asset allocations being used, the division developed a
return target - what the division would expect to achieve
on average over a 10-year period.
Ms. Leary directed attention to the market value. The
combined market value equaled $3.2 billion and about 56
percent were in GEFONSI I and the rest were in GEFONSI II.
The one-year actual return as of 12/31, which was a 1-year
rolling return, was 1.86 percent for GEFONSI I. She
continued that because the GEFONSI II was so new she did
not have a corresponding return. There were returns listed
at the 3-month and 6-month marks. She highlighted that due
to the volatility of the previous few months the actual
return was lower in GEFONSI II than GEFONSI I, and it was
negative over the previous 3 months ending 12/31.
Ms. Leary noted in her slides that she put the SBR in the
general fund. She was unsure if the committee wanted to
discuss the SBR and its values. For clarity, she explained
that originally and for a short time the SBR was part of
the GEFONSI funds. It was separated into its own account
and asset allocation as it grew. In 2015, it was rolled
back into the GEFONSI.
Co-Chair Stedman referenced slide 3 and asked how
international and domestic equities' were invested.
Ms. Leary explained that as she had mentioned at the start
of the presentation the state had pools, one of which was a
domestic pool, a passive index fund managed by one of the
state's managers, SSGA. In the international equity funds
there was a mix of passive and active managers.
Co-Chair Stedman asked for an explanation of a "passive"
investment fund.
Ms. Leary explained that a passive investment fund was a
fund that targeted the market. It tried to follow the
market rather than taking bets, considered active
management, on different types of investments. She provided
an example of a passive investment. She relayed that when a
person looked in a return box there was a benchmark. They
were the passive investments of the marketplace. When the
division created an asset allocation, it created a
benchmark that approximated what the states' assets were
and what it was investing its assets. It was what the
division compared itself to when it invested.
9:20:30 AM
Co-Chair Stedman drew attention to the lower part of the
slide which showed 3 month and 6 month returns. He wondered
if the returns were annualized or to-date. Ms. Leary
responded that they were for the 3-month period. Co-Chair
Stedman asked about the actuals of .81 percent and 1.26
percent for 6-months. Ms. Leary replied that they were for
the 6-month returns.
Co-Chair Stedman asked if they were annualized. Ms. Leary
replied, "No." The 1-year actual was a rolling number.
Therefore, it was at a particular point in time. Co-Chair
Stedman added that annualizing less than a year of returns
would result in distorted numbers.
Ms. Leary asked if would be appropriate to have a
discussion about the general fund, since she was still on
slide 3 and because the chairman wanted to address
liquidity. The general fund was the operating account that
required money coming in to pay assets. Co-Chair Stedman
replied, "That would be fine."
Ms. Leary conveyed the general fund had a balance of just
under $400 million. On the division's website there was the
ability to track the forecast of the expected general fund
amount. The general fund was where the money flowed in an
out of the state to pay salaries. The division had been
working with declining revenues and often revenues came in
at different times than expenditures were to be paid which
sometimes required borrowing. In the past, the state's
borrowing sources had been the SBR and the CBR. She
continued that with the passage of SB 26 [Legislation
passed in 2016 regarding appropriation limits and the
earnings of the Alaska Permanent Fund] it also included the
Earnings Reserve Account (ERA) from APFC. The state
borrowed $700 million from the CBR, took $350 million in
October and $250 in December from the ERA, and anticipated
taking $250 million in February and $250 million in April
to address the cash short falls in the current year.
Co-Chair Stedman asked if the state would be taking about
$1.4 billion. Ms. Leary responded, "$1.1 billion from the
ERA." Co-Chair Stedman asked if the amount was the total.
Ms. Leary expected the state would take $1.1 million
through April, leaving a balance. She stated that the cash
management tools used by the division were derived from a
model using assumptions about what the state would pay out
based on prior years. There were large ticket items such as
education expenditures. The state had to be nimble with its
model because in some months it anticipated more oil
revenue than what came in. The division had to make some
changes and worked with APFC asking for more or less
advances depending on the needs of the state. She indicated
the division's actions were in keeping with the intent
language the legislature put into the budget. The intent
language required as much of the ERA to be invested at APFC
rather than the funds being transferred over to the general
fund.
9:24:49 AM
Co-Chair Stedman wanted to know the maximum borrowing
capacity for the current year that the general fund might
be subject to. Ms. Leary stated that the amount coming from
the ERA was $2.7 billion total, approximately $1 billion of
which went for the dividend fund.
Co-Chair Stedman stated his question pertained to cash
flow. He wondered, in the day-to-day operations of the
state, about the source of cash flow if there was not
sufficient liquidity. Historically, the legislature had
gone to the CBR for short-term borrowing to pay bills and
make payroll. He queried how much the state would have to
borrow from a bank to pay its bills if the state had no
CBR, no SBR, and no access to the ERA.
Ms. Leary replied that the state required an average of
$400 million to pay its bills. The division had a cash
deficiency plan in place which was an agreement between
DOR, DOA, the Department of Law, and the Office of
Management and Budget (OMB) that dictated what should
happen in times of shortages. The state would use the SBR,
CBR, ERA, and smaller sub funds from the GEFONSI. The state
would then approach the legislature for further direction
about what to pay or not pay. The state had never had to
resort to such lengths because there had been other funding
sources available.
Co-Chair Stedman wanted to know how much cash needed to be
held in reserves. The legislature had the ability to
liquidate everything, although he did not think the
legislature would do so. He stated there would be a need
for a positive CBR balance, which was approximately $2
billion. He reiterated his question as to how much cash was
borrowed in any given year to meet liquidity needs from
other accounts within state coffers. He wanted a cash
cushion dollar amount for operations. Ms. Leary responded
that the amount was $400 million.
9:28:31 AM
AT EASE
9:28:47 AM
RECONVENED
Co-Chair Stedman stated the committee would have a
discussion about drawing from the CBR and the magnitude the
finance committee was comfortable with, if any, with a
balance of about $2 billion. He did not want to make a
policy call that placed the treasury department in an
adverse position in liquidities.
Co-Chair von Imhof thought the presentation was adequate
but not great. She thought there was more information that
should have been added. She believed the presenter had made
assumptions that the committee knew all of funds. She
believed the first couple of slides should have provided a
framework. She recommended the presentation should be
redone and presented again to the committee. She believed
more detail was needed for the committee to make decisions
in the future.
Co-Chair Stedman wanted to accelerate the slides. He
asserted the committee was concerned with the cash position
of the state.
Senator Micciche referenced Ms. Leary's earlier comments
about borrowing from the ERA. He clarified that she did not
mean overdrawing the percent of market value (POMV)
allowance. Ms. Leary responded in the affirmative. The
state had not reached the balance of the POMV draw.
Co-Chair Stedman thought there needed to be a finer point
drawn on the subject of borrowing from the CBR prior to
drawing on other accounts.
Ms. Leary showed slide 4, "Constitutional Budget Reserve
Fund Historical Invested Assets (in billions." She detailed
that in 1990 the voters of Alaska adopted an amendment to
the constitution creating the CBR. The fund was a savings
fund created to enhance budget stability. It consisted of
deposits resulting from resolutions of disputes about the
amount of mineral lease bonuses and royalties or taxes. The
legislature could appropriate from the CBR to fund
operations under certain conditions. Use of the funds
primarily required a 3/4 majority vote of the legislature.
Borrowings were allowed to fund temporary cash deficiencies
as well as shortfalls as appropriated by the legislature.
She reported that the CBR must be repaid when there was a
surplus in the general fund at the end of the year.
Ms. Leary continued that the sub-fund of the CBR was
created in 2000 with the purpose of targeting higher
returns. At the time, it had a higher risk tolerance than
the main CBR fund. She pointed to the yellow portion of the
graph and relayed that in 2008 it was funded to be as large
as it was by a deposit of both constitutional budget main
funds and about $2.6 billion from the general fund. In
2015, it was liquidated as required by statute to meet the
anticipated needs within 5 years.
9:33:11 AM
Ms. Leary displayed slide 5, "Constitutional Budget Reserve
Fund Fiduciary oversight: Commissioner of Revenue," which
showed the same statistics as for the GeFONSI seen on a
previous slide. She highlighted the target asset allocation
of mainly short-term fixed income. There was some equity
that was added to the asset allocation shortly after the
sub-fund was moved into the main fund. Its investment
objective was an intermediate investment horizon with
moderate risk. The balance on December 31, 2018 was $1.7
billion after moving $700 million to the general fund to
pay for operating expenses. The projected 10-year return at
the bottom was 2.89 percent. She reported that on December
31, 2018 the actual 1-year return was .78 percent. She
reported an impact on the markets over the previous few
months.
Co-Chair Stedman conveyed the good news that the
legislature was looking to draw $600 million from the CBR
in the current fiscal year. However, because of the market,
the amount would only be about $250 million - down a few
hundred million.
Ms. Leary discussed slide 6, "Power Cost Equalization
Historical Invested Assets." The Power Cost Equalization
(PCE) fund was created in 2000 with $100 million from the
CBR. The purpose of the fund was to provide for a long-term
stable financing source for higher cost electric service
areas of the state. In 2016, there was legislation that
changed the goal of the fund of being able to take 7
percent down to 5 percent of the monthly average market
value of the prior 3 fiscal years. The money could be used
to fund various grant programs to be given to individuals
and organizations to offset high electricity costs.
Ms. Leary continued to discuss slide 6. She noted that
Department of Commerce, Community and Economic Development
(DCCED) was the agency that oversaw the spending of the
fund. The Department of Revenue worked with DCCED to let
them know the balance of the fund and their budget
appropriation request.
Ms. Leary reviewed slide 7, "Power Cost Equalization Fund
Fiduciary oversight: Commissioner of Revenue," which showed
A table with an embedded pie chart. She noted the list of
statistics and the target asset allocation. There was more
equity the fund was invested in because of its long-term
investment horizon. It could afford to have higher risk
investments that would withstand the volatility of equity
markets over time. The projected 10-year return at the
bottom of the slide was 6.2 percent using Callan's 10-year
market assumption rates.
Ms. Leary pointed out that in looking at the 1-year actual
as of December 31, 2018 there was a negative 5.63 percent
return compared to June which was a positive 7.5 percent
return. She stressed that the timeframes being reviewed
mattered. The benchmarks showed that the entire market
showed the effects of volatility in the market place.
9:37:40 AM
Ms. Leary moved to slide 8, "Public School Trust Historical
Invested Assets (in millions)," which showed a line graph.
The Public School Trust was established in 1978 and
replaced the territorial era Public School Land Grant
created by congress in 1915. There was a permanent school
trust created prior to 1978. The Public School Trust was
created by transfer of those assets. Since then, the
additional revenue that came in was from earnings as well
as one-half of 1 percent of the income from state lands
including royalty interests.
Ms. Leary continued that in the prior year the passage of
HB 213 [Legislation passed in 2018 regarding the Public
School Trust Fund and an education raffle] changed the
structure of the trust fund. It used to be a 2-fund
structure with a principle fund and an interest or income
fund. The corpus of the Public School Trust had an asset
allocation that had some equity in it and provided both
interest and dividends into the income fund. The income
fund was then used to offset some of the K-12 Public
Education funding. The fund was to be used for public
school.
Ms. Leary continued to discuss the Public School Trust
Fund. After the passage of HB 213 it was managed as one
fund and was structured as an endowment fund or a percent
of market value (POMV) fund. There was a spending rule in
the legislation that not more than 5 percent of the average
market value for the 5 years preceding the last fiscal year
could be spent.
Senator Olson asked if it had been a wise move to go to one
fund as opposed to having two separate funds with the
corpus in one fund and the investment in another - a result
of the passage of HB 213.
Ms. Leary responded that the previous fund structure was
considered to be "old school." The new structure was a more
modern endowment-type fund. It allowed for riskier
investments and would result in an accelerated growth of
the fund. The former structure targeted income producing
investments and resulted in less growth of the fund.
Senator Olson wondered if Ms. Leary was in favor of the
change. Ms. Leary responded in the affirmative.
Ms. Leary spoke to slide 9, "Public School Trust Fund -
Fiduciary oversight: Commissioner of Revenue." She pointed
out that the fund had a long-term investment horizon with
high risk. It also had a significant amount of equity and
an investment similar to the PCE Fund. She reported that
the projected 10-year return was 6.2 percent. The
difference between the principle fund and what it currently
looked like was a shift from fixed income assets into
equity markets. She highlighted that the 1-year actual was
negative 5.66 percent. As of December 31, 2018 and June 30,
2018 the 1-year return would have been a positive 6
percent.
9:41:44 AM
Ms. Leary displayed slide 10, "Public Employees Retirement
System & Teachers Retirement System Historical Invested
Assets Pension and Health Defined Benefit Plans (in
billions)," which showed the historical invested assets for
the defined benefit plans for the Public Employees'
Retirement System (PERS) and the Teachers' Retirement
System (TRS). The Alaska Retirement Management Board was
the fiduciary of the funds and was a 9-person board that
met about 5 times per year. She detailed that treasury
staff were staff to the ARMB and the pension plans were
administered by the Division of Retirement and Benefits
within DOA. The asset allocated was set annually during the
June meeting.
Ms. Leary reviewed slide 11, "Public Employees Retirement
System & Teachers Retirement System Fiduciary oversight:
Alaska Retirement Management Board" which showed
statistics. She noted that the target allocation had seven
different classifications for assets. There were numerous
pools that rolled up into the asset allocations. There was
a significant difference for the funds than the treasury
funds that the department managed. There were more illiquid
funds that were managed because there was a long time
horizon. Some of the more illiquid funds included real
assets such as real estate, farmland, timber, and some
private equity and absolute return. She reviewed the
balance of the four funds as of December 31, 2018. The
defined benefit and health trust for PERS was a $16 billion
return. She relayed that the return for the teachers' plans
was 7.9 billion. She had September 2018 returns which were
final return numbers. The 1-year actual return was 9.39
percent as of September 30,2018 and was very similar to the
teachers' plan. She noted that the state had history over
the 34 years that the department had been tracking the
information. The returns had a nominal rate of about 9.15
percent over the 34-year period which related to a 6.52
percent real rate of return. It was a nominal rate plus
inflation which was the real buying power of the fund.
9:44:41 AM
Co-Chair Stedman noted that the committee would invite the
ARMB back to Senate Finance along with Callan to provide
more detail.
Co-Chair von Imhof compared slide 11 to slide 9 noting the
PERS and TRS funds. She noted a long-term investment
horizon and a moderate risk for PERS and TRS and a high
risk long-term investment horizon. She was curious about
the moderate risk for PERS and TRS on slide 11 which was
much more diversified, had an investment return of slightly
more even though it was a moderate risk. The high risk with
what Callan projected of a lower return of 6.2 was much
less diversified and had tougher returns. She asked Ms.
Leary if she would change the Public School Trust Fund
target allocation and potential return target to be more in
line with the PERS and TRS investments.
Ms. Leary explained that the investment objective had a
significant amount of subjectivity as to whether risk was
moderate or high. It was the fiduciary of the fund that
would determine the fund's risk appetite. It was felt that
the longevity of the Public School Trust Fund made it
possible to have a high-risk tolerance. Although, the
assets that were available to the fiduciary of the fund did
not include those that were available to the ARMB fund. For
a high risk category, the asset allocation shown on the
slide meant more movement into international equity and
domestic equity. For the retirement plans on slide 11, the
moderate risk level indicated the ARMB wanted to moderate
how much risk was being taken while developing the asset
allocation of each fund. There were many ways to target
returns. How and what the fiduciary chose to invest the
funds was an outcome of their assessment and analysis.
9:47:38 AM
Senator Wielechowski thought it did not make sense that
PERS and TRS investments with moderate risk and a long-term
investment horizon showed an 8.2 percent return over 5
years. Whereas, the high risk investments showed lesser
returns for the PCE Fund and the Public School Trust Fund.
The stock market was booming, and the Permanent Fund was
returning over 8 percent in the same period.
Ms. Leary believed the higher earnings targets were a
result of some of the illiquid assets that the ARMB had
access to in terms of its investments. The Public School
Trust Fund did not currently have a pool in which it could
participate. There were limited pools managed for state
assets. There were higher returns coming out of the
illiquid markets. She thought it would be more obvious if
the state had Callan and Associates show their breakdown of
each of the assets, their rates of return, and what they
contributed to the funds.
Co-Chair Stedman invited Ms. Leary to return and have a
discussion with more concentration on the general fund. He
asked for more information on the state's cash flow. He
asked for a 5-year cash analysis month-by-month. He wanted
to know when borrowing took place, the amount that was
borrowed, and when it was paid back. It would provide a
picture of the annual cash borrowing needs of the general
fund and help in the legislature's future deliberations. He
wanted members to give some thought to the ability of the
treasury to borrow from the Permanent Fund while there were
funds available. He understood the potential need for help
from the Permanent Fund. He did not think the state should
rely on the ERA for daily cash flow needs. He thought it
would lead the legislature to eventually liquidating the
CBR. He restated his request for a 5-year look back. He
thought the legislature was on a slippery slope by not
addressing the state's fiscal issues and looking to the
Permanent Fund. He did not want the state to reach the
point of having to look to the Permanent Fund to make
payroll.
9:52:04 AM
Senator Micciche looked at the net position from 2000 to
2007. There were times when the state had nearly zero in
the ERA. The state plodded along with $2 billion in the CBR
for years. He thought the spending was similar towards the
end of the period. He was curious if the state was coming
back to some normalcy after the years of high revenue. He
was interested in how the division managed the net position
of paying the state's bills at the time. The total net
position in the state's savings at times was around $2
billion and the state was spending similarly to what it was
currently spending. He realized that some of the revenue
ended up being far more positive. He was curious how the
treasury managed cash flow in the past. He relayed that the
state's net position was much higher because of the ERA.
Co-Chair Stedman recalled that the legislature used the CBR
without any hiccups in previous times. He expressed concern
with liquidating the state's cash and looking to the
Permanent Fund to bail it out rather than making the
necessary and hard decisions. He believed the state was
presently on an unsustainable trajectory. Ms. Leary would
bring the information to the committee to help legislators
make needed decisions.
^PRESENATATION: NEGOTIATED LABOR CONTRACTS
9:55:03 AM
KATE SHEEHAN, DIRECTOR OF PERSONNEL AND LABOR RELATIONS,
DEPARTMENT OF ADMINISTRATION, discussed her background. She
had started as a Labor Relations Analyst in 2004.
Subsequently, she moved to the Department of Law for a
brief stint as an assistant attorney general. In 2007, she
returned to serve as deputy director of labor relations.
After seven years she was appointed as a director of the
division in May 2017.
Ms. Sheehan discussed the presentation, "Alaska Department
of Administration 2018 Labor Contracts" (copy on file). She
indicated it provided a background on negotiations and an
update on the state's 11 collective bargaining agreements.
Ms. Sheehan turned to slide 2, "Framework." She reported
that negotiations were governed by the Public Employment
Relations Act (PERA) AS 23.40.070-23.40.250. The statute
provided the ground work from which the state bargained.
The state was required to bargain wages, hours, and other
terms and conditions of employments. There was case law
that described the terms and conditions in greater detail.
Ms. Sheehan relayed that the state had 11 collective
bargaining units. The contracts set forth when the state
could begin bargaining. Contracts were not to be more than
3 years in duration. Sometimes the contracts were for less
than 3 years. Depending on the contract the department
began negotiations in the fall. The state was required to
submit the monetary terms to the legislature by the
sixtieth day of the session generally in mid-March. After
the sixtieth day they could still be submitted and
considered by the legislature. However, the legislature was
not required to consider them if they were after the
sixtieth day. In the past, as long as there has been a
budget in play, either the operating budget or the capital
budget, they had been included. The department's goal and
the requirement was to submit the monetary terms by the
60th day of session.
Ms. Sheehan reiterated that the state had mandatory
subjects of bargaining. There were also permissive subjects
of bargaining such as classification that the state could
bargain but was not required to.
Ms. Sheehan continued that if either side found the demands
too unfavorable they could maintain the status quo. She
indicated that when a contract expired until reaching
impasse the state continued with the terms of the expired
contract. She would be getting slides that show the state
had several expired collective bargaining agreements of
which the state was not at impasse and continued with the
status quo.
Ms. Sheehan conveyed that once the state was at impasse,
there were a couple of options for both sides. The state
had 3 classes of employees: class 1, class 2, and class 3.
Class 1 employees were troopers, correctional officers, and
nurses. They were not allowed to go on strike. If the state
reached impasse with them, the statute required that both
parties went to binding interest arbitration.
Ms. Sheehan reported that class 2 employees could go on
strike. However, the state could seek an injunction to
bring employees back to work. The courts look at the
health, safety, and welfare to make a determination. Most
of the state's class 2 employees were Alaska Marine Highway
vessel employees. The state also had a couple of
information technology professionals in the field. The
remaining employees were in the class 3 category and could
go on strike.
Ms. Sheehan conveyed that when impasse was reached either
by mutual agreement or the Alaska Labor Relation Agency
agreed that impasse was reached, employees could go on
strike assuming the contract had expired, or the employer
(the state) could implement its last best offer.
Ms. Sheehan turned to slide 3, "State Personnel Overview"
which showed a broad overview of the funding of the
bargaining units. The slide was put together by OMB and
provided the funding sources. The accounts and costs were
based on the fiscal year 19 management plan for budgeted
position control numbers (PCN).
Co-Chair Stedman asked Ms. Sheehan to define any acronyms
she used on the slides.
Ms. Sheehan concurred.
Co-Chair von Imhof stated it was easier when cents were not
included in monetary data tables. She also encouraged Ms.
Sheehan to justify to her right in the number tables.
10:00:28 AM
Ms. Sheehan displayed slide 4, "Bargaining Unit (BU)
Detail," which provided bargaining detail information. The
slide was arranged in order of what was being negotiated.
She noted that the Alaska Correctional Officers Association
(ACOA) were class 1 employees. Their contract expired in
June 30, 2018. A few weeks prior the state went to interest
arbitration with the Correctional Officers Union. The state
expected a decision from the arbitrator on March 10, 2019
at which point the state would be required to submit the
monetary terms for the arbitration award.
Ms. Sheehan reported that the Alaska State Employees
Association (ASEA) was the largest union and included
nurses, engineers, paralegals, and office assistants. Their
contract expired June 20, 2019. The state reached agreement
under the prior administration and the terms of the
agreements were submitted to the legislature. They agreed
to cost of living adjustments of 3 percent in the first
year and effective in June 2019, 1 percent in the second
year, and 1 percent in the third year. There were also some
employer contributions into their health trust.
Ms. Sheehan continued to discuss slide 4. She reported that
the contract for the Alaska Vocational Technical Center
(AVTEC) Teachers Association representing the instructors
at AVTEC expired on June 30, 2019. The department was just
beginning negotiations. She explained that the Confidential
Employees Association encompassed her staff, the division
of personnel, the human resources staff, the agencies, as
well as some of the finance staff within the Alaska Marine
Highway Dispatchers. Their contract also expired June 30,
2019. An agreement was reached under the prior
administration. The agreement called for no cost of living
adjustments but moving them to a 40 hour work week. It also
included an employee contribution to health care. She
detailed that for many years if an employee had the economy
plan and Alaska Care did not have an employee contribution
the state started bargaining employee contributions.
Ms. Sheehan addressed the Inland Boatmen's' Union (IBU),
the Marine Engineers Beneficial Association (MEBA), and
Masters, Mates, and Pilots (MMP); three contracts which
expired June 30, 2017. The state had been in negotiations
with the units since the fall of 2016. The state continued
to meet with them in their less busy season in the fall.
Ms. Sheehan reported the final contract the state was
currently negotiating was the Teachers' Education
Association of Mount Edgecumbe. Their contract expired June
30, 2018. The state had reached an agreement under the
prior administration and the terms had been submitted to
the legislature. They received a cost of living adjustment
of 3 percent the first year, 3 percent in the second year,
and 3 percent in the third year. The reason that their
percentage was higher than others was because their
comparators was the Sitka School District which was paying
higher. The state also looked at some of the negotiated
wage increases which were significantly lower than some
other state employees.
10:04:22 AM
Senator Wielechowski asked if they agreed to take on any
additional burdens such as health insurance. Ms. Sheehan
answered in the affirmative. The state bargained for health
insurance the same as any other union which was up to 12
percent the first year and 15 percent in the second and
third year.
Co-Chair Stedman asked if the committee should assume that
the increases would be in the coming budget on the
thirteenth. Ms. Sheehan answered in the affirmative.
Senator Micciche asked which employees were missing from
the slide. Ms. Sheehan stated that University employees,
legislative employees, and court employees were not
included. The slide was limited to employees of the
executive branch.
Ms. Sheehan addressed the contract for the Public Safety
Employees Association (PSEA). Their contract expired on
June 30, 2020 and negotiations would begin in the coming
fall. However, the state negotiated with them in October
and November. She reminded members of the legislative
intent language to open up negotiations for troopers due to
recruitment and retention issues. She reported that DOA did
a couple of things with them. The state took a
classification action looking at a market-based pay study
to determine that the state was paying too low in its
trooper class series. The state increased all of them by
one range. The series included trooper recruits, troopers,
corporals, and sergeants. The division also took a look at
the command staff in the supervisory union and increased
their ranges. In addition to the classification action, a
cost of living adjustment of 7.5 percent was bargained
through a letter of agreement. The terms of the letter of
agreement had already been sent to the legislature for
funding and approval.
Senator Wilson asked if there was a review in changes for
nurses at the Alaska Psychiatric Institute (API).
Ms. Sheehan responded positively. The state also did a
market-based pay study to look at nurses which was still
ongoing. The state increased the ranges for psychiatric
nurses at API and a few at the Department of Corrections.
The state also increased the ranges for correctional
nurses. As a result, under the personnel act,
classification required internal alignment - like pay, for
like work. The state was looking at all nurses as part of
the study including the psychiatric nurses and the
correctional nurses.
Ms. Sheehan addressed the final 2 units - the Alaska Public
Employees Association (APEA) which was the supervisors
union, and labor trades and crafts. Both unions were
currently under contract and the terms were sent last
session. Both unions agreed to a 40-hour work week and no
cost of living adjustments.
Senator Micciche thought it would be nice to have the
status of each unit on a slide.
Co-Chair Stedman could have the presenter come back with a
modified slide.
Ms. Sheehan agreed to provide the information.
10:08:37 AM
Senator Bishop thought it would also be helpful to have a
slide showing the previous contract for comparison with the
new contract.
Senator Shower asked Ms. Sheehan to speak to the timetable
of negotiations.
Ms. Sheehan stated there was no timeframe. The state
bargained until it reached impasse. Following an impasse,
an interest arbitration, a strike, or an implementation of
last best offer might occur. Some negotiations were taking
a long time. The state had not been bargaining Cost of
Living Adjustments (COLA) for a while until recently with
some of the unions. It had been a sticking point.
Bargaining and employee contributions were new for many
employees which had also been a sticking point.
Negotiations with the marine highway unions it had taken a
significant amount of time.
Senator Wielechowski asked if the state was asking for
employer contributions for health care. He asked about the
contribution percentage. He had heard 12 to 15 percent with
the average health care plan costing about $20,000 per
year. He asked if he was accurate.
Ms. Sheehan stated that the employer contribution to Alaska
Care was $1,555 per employee per month. She thought the
employees contribution was about 8 percent.
Co-Chair Stedman asked Ms. Sheehan to come back to the
committee with the information.
Ms. Sheehan turned to slide 5, "Summary of Bargaining,"
which showed the 2 units bargained under the previous
administration and the other units that were currently
under agreement. She noted that the state did not bargain
any COLAs with the Supervisory Unit but moved to a 40-hour
work week. The Supervisory Unit had employee contributions
to the economy plan of 12 to 15 percent.
Ms. Sheehan reported that with the Labor Trades and Crafts
unit the state moved the unit to a 40-hour work week
without a COLA adjustment. The unit was in a health trust.
Therefore, the state did not bargain employee contributions
for the health trust. It only bargained the employer
contribution. In a later slide it would show how much the
state bargained.
Ms. Sheehan relayed that the state entered into an
agreement with the Alaska State Employees Association
Confidential Employees unit in the previous November and
was pending legislative approval. The unit was moved to a
40-hour work week without a COLA.
10:12:15 AM
Ms. Sheehan discussed slide 6, "Sample Historical COLAs &
Anchorage CPI Comparison," which showed historical COLAs in
comparison to the Consumer Price Index (CPI). She noted
that the Mt. Edgecombe teachers were at about 14 percent,
significantly lower than others. Some of the higher totals
stemmed from groups that had access to interest arbitration
or class 1 employees such as public safety and correctional
officers.
Co-Chair von Imhof thought the slide was interesting and
wondered about including the entire benefit package that
employees obtained through bargaining compared to the CPI.
Ms. Sheehan noted that not all unions had merit steps or
pay increments such as the 3 marine highway units. The
teachers unit and AVTEC did things differently. She
explained that employees that received merit steps and pay
increases received merit steps of about 3.5 percent for the
first 5 years, COLAs, and pay increases of 3.25 percent
every other year.
Co-Chair Stedman asked for Ms. Sheehan to formulate the
data for an entire benefit package and provide the
information to the committee. Ms. Sheehan responded, "Yes."
Senator Shower asked to see data regarding pay increases
and inflation.
Co-Chair Stedman asked for more of a historical viewpoint.
Ms. Sheehan agreed to provide the information.
Ms. Sheehan reviewed slide 7, "Benefits." She indicated
that benefits were part of a total employment package. She
thought the state had done studies through the Institute of
Social and Economic Research (ISER) over time showing that
much of the entry level pay was below market. However, when
benefits were included, the state was at or above market.
The state had started bargaining employee premium
contributions. She believed the only unions that did not
impose the cost was the Inland Boatman's Union and the
Marine Engineers Beneficial Union. The state was currently
in negotiations with both units. The state also implemented
the employee contributions for partially exempt and exempt
employees.
Ms. Sheen continued to address slide 7. She reported that
for health trusts the philosophy of the state had been to
contribute at a rate that neither over-funded or under-
funded. The following slide would show what the state was
contributing to the health trusts. The state had 4 health
trusts including Masters, Mates, and Pilots; Public Safety
Employees Association; Labors, Trades, and Crafts; and the
Alaska State Employees Association.
10:16:13 AM
Co-Chair von Imhof asked if Ms. Sheehan saw the financials
of the health trusts to determine whether the state was
over or under funding. She wondered if the state had a way
of seeing how well the trusts were bargaining with
healthcare providers.
Ms. Sheehan stated that under the collective bargaining
agreement, the division had the right to request
information. The state's consultants performed an analysis
to determine the amount to pay the health trusts. However,
it was difficult with the Masters, Mates, and Pilots unit
because of their plan being a multi-employer plan. The
information could be obtained.
Co-Chair Stedman asked if Ms. Sheehan had figures to show
how many MMP were state residents. Ms. Sheehan thought
about 70 percent were residents.
Co-Chair von Imhof asked if the health trusts financial
information was available to legislators. Ms. Sheehan would
get back to the committee with an answer.
Ms. Sheehan considered slide 8, "State's Contribution to
Health Trust/Health Insurance" which showed the AlaskaCare
employee contribution at $1,555 per employee, per month.
The health trusts were slightly different. The state
bargained the rates based on the recommendation from its
consultant. She pointed to ASEA. The state was paying
$1,432 per employee per month - slightly less than
AlaskaCare. The amount went up to $1,530 then to $1,555.
She noted that for MMP the state only paid $1,346 per
employee, per year which was the same rate the state had
been paying since the contract expired. She continued that
the Public Employees Association's contract language
required the state to bargain the employer contribution
every year. The state's actuary was looking at the number
every fall to determine the appropriate rate.
Ms. Sheehan noted that she included the following few
slides that showed the bargaining unit summary for each of
the state's 11 unions. It provided more information about
each unit.
Co-Chair Stedman invited Ms. Sheehan to walk through each
of the slides.
Ms. Sheehan reviewed slide 10, "Bargaining Unit Summary:
Alaska Correctional Officers Association":
ACOA Bargaining Unit
Total Bargaining Unit Members 877
Average age of all members: 41
Average years of service: 8.52
Average monthly pay for permanent full-time member:
$5,743.67
Average yearly pay for permanent full-time member:
$68,924.04
Total overtime for all members: $6,981,712.87
Total FY18 gross pay for all members: $68,282,408.15
* Includes premium pays, excludes benefits
Ms. Sheehan reported that the total gross pay figures were
actual numbers based on the previous fiscal year's payroll.
It was not necessarily what was budgeted. The bargaining
members were actual rather than budgeted PCNs.
Ms. Sheehan displayed slide 11, "Bargaining Unit Summary:
Alaska Public Employees Association (SU)": and reported it
was the second largest union.
Represents the Supervisory Bargaining Unit (SU)
Total Bargaining Unit Members 2,101
Average age of all members: 48
Average years of service: 13.70
Average monthly pay for permanent full-time member:
$7,336.76
Average yearly pay for permanent full-time member:
$88,041.12
Total overtime for all members: $1,221882.78
Total FY18 gross pay for all members: $186,962,060.84
* Includes premium pays, excludes benefits
10:20:07 AM
Ms. Sheehan looked at the state's largest bargaining unit
on slide 12: "Bargaining Unit Summary: Alaska State
Employees Association":
Represents the General Government Unit (GGU)
Total Bargaining Unit Members 8,051
Average age of all members: 43
Average years of service: 8.10
Average monthly pay for permanent full-time member:
$5,081.36
Average yearly pay for permanent full-time member:
$60,976.32
Total overtime for all members: $20,862,611.30
Total FY18 gross pay for all members: $433,257,257.84
* Includes premium pays, excludes benefits
Ms. Sheehan turned to slide 13, "Bargaining Unit Summary:
Alaska Vocational Technical Teachers Association":
AVTECA Bargaining Unit
Total Bargaining Unit Members 31
Average age of all members: 53
Average years of service: 8.95
Average monthly pay for permanent full-time member:
$6,691.43
Average yearly pay for permanent full-time member:
$80,297.16
Total FY18 gross pay for all members: $2,458,201.88
* Includes premium pays, excludes benefits
Ms. Sheehan displayed slide 14, "Bargaining Unit Summary:
Confidential Employees Association":
Represents the Confidential Unit (KK)
Total Bargaining Unit Members 198
Average age of all members: 43
Average years of service: 9.58
Average monthly pay for permanent full-time member:
$5,342.96
Average yearly pay for permanent full-time member:
$64,115.52
Total overtime for all members: $65,049.74
Total FY18 gross pay for all members: $11,657,912.31
* Includes premium pays, excludes benefits
Ms. Sheehan stated that the unit encompassed the human
resources staff. She clarified that the supervisors and the
confidential employees were defined in regulation.
Ms. Sheehan showed slide 15, "Bargaining Unit Summary:
Inland boatmen's Union of the Pacific":
IBU Bargaining Unit
Total Bargaining Unit Members 430
Average age of all members: 48
Average years of service: 8.44
Average monthly pay for permanent full-time member:
$4,717.16
Average yearly pay for permanent full-time member:
$56,605.92
Total overtime for all members: $4,110,224.78
Total FY18 gross pay for all members: $28,260,252.60
* Includes premium pays, excludes benefits
Ms. Sheehan discussed slide 16, "Bargaining Unit Summary:
Labor Trades and Crafts":
LTC Bargaining Unit
Total Bargaining Unit Members 1654
Average age of all members: 46
Average years of service: 8.88
Average monthly pay for permanent full-time member:
$4,711.50
Average yearly pay for permanent full-time member:
$56,538.00
Total overtime for all members: $10,857,000.08
Total FY18 gross pay for all members: $93,048,693.95
* Includes premium pays, excludes benefits
Ms. Sheehan reviewed slide 17, "Bargaining Unit Summary:
Marine Engineers' Beneficial Association":
MEBA Bargaining Unit
Total Bargaining Unit Members 86
Average age of all members: 48
Average years of service: --
Average monthly pay for permanent full-time member:
$7,092.65
Average yearly pay for permanent full-time member:
$85,111.80
Total overtime for all members: $498,954.57
Total FY18 gross pay for all members: $9,364,620.23
* Includes premium pays, excludes benefits
Ms. Sheehan considered slide 18, "Bargaining Unit Summary:
Masters, Mates & Pilots":
MMP Bargaining Unit
Total Bargaining Unit Members 86
Average age of all members: 44
Average years of service: 12.81
Average monthly pay for permanent full-time member:
$7,283.34
Average yearly pay for permanent full-time member:
$87,400.08
Total overtime for all members: $1,053,104.76
Total FY18 gross pay for all members: $10,401,300.66
* Includes premium pays, excludes benefits
Co-Chair Stedman noted that MMP had longer years of service
- an average of about 8 or 9 years. He asked if he was
correct. Ms. Sheehan noted that MMP's were highly skilled.
It took them several years to get piloted for some of their
routes and it was true they stayed in their positions
longer.
Ms. Sheehan looked at slide 19, "Bargaining Unit Summary:
Public Safety Employees Association":
PSEA Bargaining Unit
Total Bargaining Unit Members
384 (AA) 73 (AP)
Average age of all members: 41 (AA) 37 (AP)
Average years of service: 11.49 (AA) 8.68(AP)
Average monthly pay for permanent full-time member:
$8,199.47 (AA) $6,814.25 (AP)
Average yearly pay for permanent full-time member:
$98,393.64 (AA) $81,771.00 (AP)
Total overtime for all members: $3,774,603.87 (AA)
$863,317.60(AP)
Total FY18 gross pay for all members: $43,883,313.24
(AA) $7,181,730.66 (AP)
* Includes premium pays, excludes benefits AA DPS;
AP DOTPF
Ms. Sheehan noted that the 7.5 percent COLA was pending in
the legislature and applied only to troopers.
Ms. Sheehan showed slide 20, "Bargaining Unit Summary:
Teachers Association of Mt. Edgecumbe":
TEAME Bargaining Unit
Total Bargaining Unit Members 29
Average age of all members: 43
Average years of service: 9.66
Average monthly pay for permanent full-time member:
$5,653.41
Average yearly pay for permanent full-time member:
$67,840.92
Total FY18 gross pay for all members: $2,090,555.42
* Includes premium pays, excludes benefits
Ms. Sheehan turned to slide 21, "Striking," which provided
information about the 3 strike classes and their
definitions.
Ms. Sheehan advanced to slide 22, "Rejection of Monetary
Terms: CBA Terms," which showed what happened if the union
failed to ratify the terms of a collective bargaining
agreement or the legislature did not approve a contract.
She reported that most of the contracts required that the
state immediately reenter into negotiations.
Co-Chair Stedman asked Ms. Sheehan to review the 60-day
rule. Ms. Sheehan explained that under statute, the state
was required to submit the monetary terms to the
legislature by the 60th day of session. If the state agreed
to it outside of session, it had to be submitted within 10
days of the beginning of session. For most of the
collective bargaining agreements, the state was still in
the process of bargaining. If DOA submitted it later than
the 60th day, the legislature would not be required to
consider it, but it could.
Co-Chair Stedman asked if the legislature had ever not
funded an agreement. Ms. Sheehan answered in the
affirmative. Co-Chair Stedman asked her to provide the
committee with a history on the issue. Ms. Sheehan agreed
to bring back the information.
Co-Chair Stedman commented that he could not recall in his
tenure the legislature not funding it. He thanked the
presenter. He thought the years of service and average age
was fairly close throughout all the bargaining units. The
median age was 40, and the average number of years of
service was between 8 and 9 years.
Co-Chair Stedman discussed the schedule for the following
day.
ADJOURNMENT
10:24:39 AM
The meeting was adjourned at 10:24 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 020519 DOA Labor Contracts Presentation SFin.pdf |
SFIN 2/5/2019 9:00:00 AM |
Labor Contracts |