Legislature(1993 - 1994)
02/03/1993 09:06 AM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE STATE AFFAIRS COMMITTEE February 3, 1993 9:06 a.m. MEMBERS PRESENT Senator Loren Leman, Chairman Senator Mike Miller, Vice Chairman Senator Robin Taylor Senator Jim Duncan Senator Johnny Ellis MEMBERS ABSENT All Present COMMITTEE CALENDAR SENATE BILL NO. 29 "An Act making a special appropriation to the principal of the Alaska permanent fund; and providing for an effective date." SENATE CONCURRENT RESOLUTION NO. 1 Relating to the twenty-seventh annual Boys' State. SENATE BILL NO. 56 "An Act relating to the budget reserve fund established under art. IX, sec. 17, Constitution of the State of Alaska." SENATE BILL NO. 1 "An Act relating to retirement incentive programs for the public employees' retirement system, the teachers' retirement system, and certain persons under the judicial retirement system; and providing for an effective date." SENATE BILL NO.10 "An Act establishing a retirement incentive program for certain employees; and providing for an effective date." SENATE BILL NO. 6 "An Act amending and making effective an annuity program and amendments to the longevity bonus program and the permanent fund dividend program provided for in secs. 2 - 18, ch. 99, SLA 1985; and providing for an effective date." PREVIOUS SENATE COMMITTEE ACTION SB 29 - See State Affairs minutes dated 1/29/93. SCR 1 - No previous action to record. SB 56 - No previous action to record. SB 1 - No previous action to record. SB 10 - No previous action to record. SB 6 - No previous action to record. WITNESS REGISTER Senator Randy Phillips State Capitol Juneau, Alaska 99801-1182 POSITION STATEMENT: Testified on SB 56. Representative Kay Brown State Capitol Juneau, Alaska 99801-1182 POSITION STATEMENT: Testified on SB 56. Darrel Rexwinkel, Commissioner Department of Revenue P. O. Box 110400 Juneau, Alaska 99811-0400 POSITION STATEMENT: Testified on SB 56. Shelby Stastny, Director Office of Management and Budget P. O. Box 110020 Juneau, Alaska 99811-0020 POSITION STATEMENT: Testified on SB 1 & SB 10. Barry Haight 991 Vail View Dr. Fairbanks, Alaska 99712 POSITION STATEMENT: Supports SB 1 & SB 10. Jim Preston P. O. Box 210336 Auke Bay, Alaska 99821 POSITION STATEMENT: Supports SB 1. Bob Deitrick 4421 Teel Court Juneau, Alaska 99801 POSITION STATEMENT: Supports SB l. Mike Harold 9582 Whitewater Court Juneau, Alaska 9980l POSITION STATEMENT: Supports SB 1. Bill Kelder, Aide Senator Jay Kerttula State Capitol Juneau, Alaska 99801-1182 POSITION STATEMENT: Testified on SB 6. Senator Jay Kerttula State Capitol Juneau, Alaska 99801-1182 POSITION STATEMENT: Testified on SB 6. Nancy Bear Usera, Commissioner Department of Administration P. O. Box 110200 Juneau, Alaska 99801-0200 POSITION STATEMENT: Testified on SB 6. Mary Lou Meiners American Assoc. of Retired Persons P. O. Box 20412 Juneau, Alaska 99802 POSITION STATEMENT: Supports SB 6. ACTION NARRATIVE TAPE 93-7, SIDE A Number 001 CHAIRMAN LEMAN called the Senate Affairs Committee meeting to order at 9:06 a.m. and announced SB 29 (APPROP: EARNINGS RESERVE TO PF PRINCIPAL) to be up for consideration. SENATOR MILLER moved to pass SB 29 from committee with individual recommendations. There were no objections and it was so ordered. SENATOR LEMAN announced SCR 1 (TWENTY-SEVENTH ANNUAL BOY'S STATE) to be up for consideration. SENATOR LEMAN relinquished control to Senator Miller and presented a brief sponsor's statement. SENATOR MILLER returned control to Senator Leman. SENATOR MILLER moved to pass SCR l from committee with individual recommendations. There were no objections and it was so ordered. SENATOR LEMAN introduced SB 56 (ADMINISTRATION OF BUDGET RESERVE FUND) and invited Senator Phillips and Representative Brown to join the committee at the table. SENATOR PHILLIPS testified that the legislation clarifies "administrative proceedings" and puts the money into the Constitutional Budget Reserve Fund. SENATOR MILLER moved to adopt the work draft dated 2/2/93 to SB 56. There were no objections and it was so ordered. REPRESENTATIVE BROWN said she participated in the development of the bill as she is a member of the Legislative Budget and Audit Committee. She explained that the CS has two changes on page 1, section 1, which is the section that reflects the interest as well as penalties on past due taxes. Secondly, on page 2, line 2, the words "been requested" was substituted for the word "begun" which she said also refers to past due taxes. She said the substantial lag time between the request and the time the hearing actually began needed to be addressed. Number 065 REPRESENTATIVE BROWN explained the issues are what money should go into the Constitutional Budget Reserve and what is meant by the term "administrative proceeding." DARREL REXWINKEL, Commissioner, Department of Revenue testified in favor of the amendments adopted in CSSB 56 (STA). He said in 1990, the voters adopted legislation regarding the Constitutional Budget Reserve Fund which has language about the settlement of taxes which would go into it. COMMISSIONER REXWINKEL said an Attorney General's opinion explain what really constitutes an "administrative proceeding." During the audit process, the taxpayers file voluntary tax returns which the Department of Revenue can audit. Because of the large amounts of money involved, all of the major oil producers are audited. As a result of that audit process, an assessment notice is issued. The taxpayer then has sixty days to pay the tax, request an informal conference, or request a formal hearing. He noted it has to go through a formal hearing process before it can go to litigation. COMMISSIONER REXWINKEL said he supports the Attorney General's opinion. Number 120 He also said there was some question about the amount of money involved. Last year there was $16 million in the Constitutional Budget Reserve Fund. Once the Attorney General's opinion had been released, they started to look at the settlement receipts and noticed that some were improperly classified as general fund money. The Department then started auditing general fund receipts as far back as July 1, 1990 to see if it had any funds that belonged in the Constitutional Budget Reserve Fund. The Department now believes the amount that goes into the Administrative Settlement account is probably a little over $200 million. Number 175 SENATOR TAYLOR said he disagreed strongly with the Attorney General's opinion and is not yet convinced that there is a real reason to modify what he considers to be very clear language. Number 200 COMMISSIONER REXWINKEL testified that the informal hearing process is like an extension of the audit. The auditors issue assessment notices, sometimes, based on very incomplete information. Through the hearing process, auditors stick by their assessment notice or issue a revised notice of assessment. Then there is either a settlement or a hearing. JAMES BALDWIN, Assistant Attorney General, testified that the Department of Law was not concerned with where the dollars would wind up, they were concerned with establishing a good definition of "administrative proceedings" aside from the audit process. Number 225 REPRESENTATIVE BROWN asked about the recalculation of the Administrative Settlement Account and the source of the $200 million. COMMISSIONER REXWINKEL answered that was yet to be fully determined. A majority of the funds came from the litigation on the royalty cases, so it is clearly Constitutional Budget Reserve Fund money. Number 250 SENATOR LEMAN commented that he was concerned about the retroactive application of the audits. REPRESENTATIVE BROWN explained the bill would become effective 90 days after enactment if it did not have an effective date. As it is drafted presently, the issue is what to do with the Administrative Settlement Account that was mixed with the general fund. Presumably, she said, you could make this bill retroactive and try to sweep money back into the Constitutional Budget Reserve Fund. Assistant Attorney General Baldwin suggested the six months that now appears in this bill. REPRESENTATIVE BROWN agreed with Senator Taylor that the language in the constitution is clear and that we are attempting to capture all monies including windfalls and back taxes. For the Attorney General to ignore the issue of where the money ended up, she thought, was a misreading of the history. She did believe that it is necessary to pass some bill that addresses this issue. Number 300 SENATOR LEMAN said he would like to know why the bill needed an effective date sooner than ninety days to deal with the retroactive issues? Number 325 REPRESENTATIVE BROWN said the last section of the bill makes it easier to access the fund by defining what is available for appropriations. That is a provision the administration does support. It specifies that we could not be counting the earnings reserve of the permanent fund before the legislature could access this fund or other designated funds. Number 350 SENATOR DUNCAN said the Committee should have a clearer understanding from the administration what the real impact is on revenues available for fiscal year 94. COMMISSIONER REXWINKEL said he would have the information in a week. REPRESENTATIVE BROWN said she had requested an accounting on October 5, 1992. She received a brief reply in December saying there was $103 million in the fund and she was still trying to get a straight answer on what settlements have come in and what the disposition of them has been. Number 375 COMMISSIONER REXWINKEL apologized to Representative Brown and to the State Affairs Committee members, but the audit was not done, yet. SENATOR TAYLOR wanted to determine the definition of "administration hearing" and "receive." He was also concerned about the ability of the Governor and the Attorney General to settle litigation like the $16 million with Tyson Seafoods. Apparently, the Attorney General has been negotiating with Tyson to build the State a couple of boats for The Department of Fish and Game. While the need is there and Tyson can build them at a low price, he didn't think it was the Attorney General's job to decide how the settlement should be spent. He thought it was the legislature's job to appropriate those funds. The legislature let it happen once with the Exxon-Valdez settlement, but he would not support further activities of that nature. Number 400 SENATOR LEMAN said the committee would hold SB 56 in committee and appointed a subcommittee consisting of Senators Duncan, Taylor and Leman. SENATOR LEMAN introduced SB l (RETIREMENT INCENTIVE PROGRAM) and SB 10 (RETIREMENT INCENTIVE PROGRAM) to be up for consideration. Number 420 SENATOR DUNCAN, prime sponsor of SB l, testified that the state had two previous retirement incentive programs in 1986 and 1989. The 1986 program saved approximately $73 million dollars in personal services costs, with approximately 2,300 employees retired under that program. The 1989 program resulted in a savings of $23 million dollars with the retirement of about 1,800 employees. Last year when the legislation was introduced and passed by the legislature, it was estimated there were about 10,600 employees eligible for the retirement incentive program. About 20 to 30 percent of those eligible have retired. It was estimated that at that 2,000 - 3,000 might actually participate in a retirement incentive program. He had no reason to believe that number has decreased, in fact, it probably has increased. To qualify, an employee must be within three years of early or normal retirement. The increased benefit would vary depending on each individual's length of service, their age and which retirement system they are participating in. The personal services savings required by the program will again be calculated over a five year period. Letters are on file in support of the program, Senator Duncan said, from such places as the Anchorage School District and the Cities of North Pole, Hoonah, Wrangell, Kenai, Ketchikan, Juneau, etc. He said there is great support for the program. Number 450 SENATOR DUNCAN thought the most compelling facets of the program really are the economic benefits it brings to the state, not just to state government, but to school districts, other governmental entities, and municipal governments. He said that the audits clearly point out there is a personal services savings. In a period of tightening budgets and declining revenues an early retirement program means fewer layoffs. It's a more humane and a more rational way of reducing government. Studies indicate it has not negatively impacted the retirement system, because it's a fully funded, sound program. It's a management tool that should be available. Even if there are not going to be massive layoffs due to an economic downturn, SENATOR DUNCAN said the stated goal of this administration and the majority of this legislature is to reduce government expenditures and reduce personal services cost. Number 500 Furthermore, there's nothing mandated in this program other than that we make the program available for managers. TAPE 93-7, SIDE B Number 560 SHELBY STASTNY, Director, Office of Budget and Management, said the administration's position on SB 1 and SB 10 is not popular, and it was not taken lightly. They believe it is the appropriate position, however. They believe the retirement incentive programs work very effectively when there are large numbers of layoffs required. Many private industries and governments have used it as a tool when significant layoffs are necessary. MR. STASTNY said one of the difficulties the administration has with a series of retirement incentive programs is that they lose their effectiveness. They begin to have the opposite effects for which they were intended. As retirement incentive programs become a regular occurrence, it is very difficult for a person to retire normally. Although a person does, as Senator Duncan said, pay into the retirement program for their share of the actual cost, the fact remains that it does give them an opportunity to participate in the retirement program for an extended period of time. If it's on the books as a tool, then it's in the back of everybody's head that maybe they ought to wait around for it and lobby the administration to make it happen. Number 575 MR. STASTNY said the administration believes that the cost savings are not there unless there are large numbers of layoffs, and they may not necessarily be there then. The average amount saved by the state in the last RIP program was $8,000 per employee, more or less. The difficulty in the calculation comes with the number of people who would have retired anyway. $8,000 is a skinny margin as far as savings go. It doesn't take many of those people who would have retired anyway to wipe out the $8,000 average per employee savings. His responsibility as the Director of the Office of Management and Budget is to make sure the state is spending money appropriately and the programs we enter into make good economic sense. In order for RIP programs to save a significant amount of money, a large number of the positions need to be held vacant which could be written into the way the RIP is administered by the state. The last point is the drain it has on good experienced state employees at a time when our revenue projections are going down. It seems that we ought to be working to hang on the most experienced employees rather than encouraging those people to leave. We believe that at this particular point in our history it doesn't make good sense to enact these bills, MR. STASTNY said. SENATOR DUNCAN said a person has to decide if they will retire by a certain date, according to his legislation. For example, state employees have an application period of three months. Participation is not mandatory. It is a management decision. This is a management tool which should be available. SENATOR DUNCAN asked Mr. Stastny if the Governor's FY '94 budget took into account inflationary increases, cost of living increases for contracts, and built in increases for education funding etc.? Or were agencies being asked to absorb those monies? MR. STASTNY answered that agencies are asked to absorb significant amounts of money, yes. SENATOR DUNCAN asked if there were major reorganizations going on in state government that could impact a number of positions? MR. STASTNY answered that there was some reorganization being planned, but whether they will entail significant reductions, he could not answer that for sure. SENATOR DUNCAN said that rumors are, for example, DOTPF design and construction in southeast could lose ten positions. SENATOR DUNCAN asked if there was any concern in the administration that oil prices might continue to decline. MR. STASTNY answered obviously there is always that concern. SENATOR DUNCAN said that all those things concern all of us and you should have a management tool available to address those situations. MR. STASTNY said he understood Senator Duncan's concern. SENATOR TAYLOR said he could understand the tough manager argument and also appreciated the difficulty a manager would have taking out a crystal ball to try and determine what would happen in the future. SENATOR TAYLOR asked if once the department makes a decision to participate, do they have an idea how many people will actually take advantage of the program. SENATOR DUNCAN answered that the decision is always in management's hands. The first decision to be made is will state government participate at all. Second, will the Department of Administration participate. Third, of the 200 - 400 people eligible in administration, which of them will be allowed to participate. SENATOR TAYLOR asked, if management would have the authority to discriminate among the employees once they have opted. SENATOR DUNCAN answered that they had in the past. Number 910 BARRY HAIGHT, Fairbanks fire fighter, representing a group of Fairbanks Public Safety employees, supported SB 1, because he believed the Retirement Incentive Program is an effective management tool to cut costs and reduce government in times of declining revenues. He said the City of Fairbanks and its employees have participated in two previous programs and it had worked well saving 3/4 of a million dollars in the 1989 program. The City has agreed with its fire fighters to participate in any future early retirement programs. SENATOR TAYLOR asked if the program they were currently operating under was a twenty-year and out program and was there a five-year buy-in of previous military time? MR. HAIGHT answered the program was twenty-years and out. There was also a buy-in for military time. Number 860 JIM PRESTON, President-elect of the Juneau Education Association, and teacher at the local high school, stated as an employee of the Juneau School District, he was not eligible under the proposal to retire. If the early retirement program would not have been vetoed last year, we could have saved in our own district one and a half million dollars, and that's out of a $35 million dollar budget. Another advantage to using early retirement is that by replacing a retiring teacher with a less expensive younger teacher fresh from the university with new ideas certainly would increase the chances for restructuring to occur. Number 835 BOB DEITRICK, President of the Juneau Education Association, and teacher at the Harborview Elementary School, supported SB 1. The district is at a point where the budget is being reviewed for next year. There is a shortfall in next year's budget. Fortunately, the School Board held some money back this year for carry-over because of the budget shortfall. However, Juneau is looking at a two percent cut in the school district's budget. In another year, we are looking at a greater deficit in our budget. Layoffs will occur in the Juneau School District if we don't have some way of cutting back our expenses. The local economy will benefit by the passage of this bill by keeping people in the city and in the state. In the education business, you cannot cut positions and you cannot cut classrooms. If you cut classroom positions, you increase class size. For the benefit of the kids, we need passage of this bill. Number 770 MR. DEITRICK said we need to have an avenue to maintain an equitable program to deliver services to kids in the classroom. MIKE HAROLD, Juneau Education Association and a teacher at the high school, said most of the teachers (120 to 160) are eligible under this program to retire. In the past two RIP's 70 teachers retired at a savings to the district of $1,500,000. Many teachers stayed and continued teaching. MR. HAROLD said he was eligible under this particular program and probably would elect to take it. Number 730 BILL KELDER, aide to Senator Kerttula, testified that because SB 1 and SB 10 are virtually identical, except for the windows of opportunity, and SB 1 was introduced earlier by Senator Duncan that he would respectfully request that action on SB 10 be deferred at this time. Senator Kerttula is not asking that the bill be withdrawn, just held in abeyance at the chairman's desire. MR. KELDER said it was encouraging to hear Mr. Stastny testify that he didn't see imminent massive layoffs coming, but he may be wrong and Senator Kerttula thought this would be a very valuable tool to have in place. SENATOR LEMAN said he would hold SB 1 for further testimony. SENATOR LEMAN announced SB 6 (ANNUITY PROGRAM AMENDMENTS) to be up for consideration. Number 750 SENATOR KERTTULA, Sponsor, asked Ted Beilman to join him at the committee table. SENATOR KERTTULA explained that this particular piece of legislation or a very close cousin passed the Senate last term. This was a bill that almost 100,000 people voted for. He said he knows the budget process and the state can afford the annuity. This time it should be adopted. Number 650 In December the Wasilla Chamber of Commerce again endorsed the annuity bill. As far as he is concerned, the Department of Administration, the people in the Office of Management and Budget, the third floor influence peddlers with new master's degrees who have never been north of Yakutat have back doored and confused this issue. Their stair stepping program was uneven and puts the whole program at risk, because it may be unconstitutional. He asked that they pass the bill and speed it on its way. Number 550 NANCY BEAR USERA, Commissioner, Department of Administration, explained that the Governor has introduced an alternative to SB 6. She said the governor supported the annuity in 1986 when it was on the ballot, as she and a lot of Alaskans did. Had that bill passed at that time, we would be a long way down the road toward resolving some of these issues and narrowing the funnel of people coming into the program. The fact is for whatever reason, the bill did not pass, it did not pass in 86, 87, 88, 89, 90, 91, 92 and here we are in l993 and the governor continues to support an annuity concept. She said she didn't think we could discuss this bill without admitting it is a bill for the middle aged. According to the Governor's bill, anyone who is now 62 or older will be protected for life as the seniors are grandfathered in in Senator Kerttula's bill. Number 500 COMMISSIONER USERA said it was appropriate that people who were 40-55 years old enter into this discussion, and let them know what kinds of programs they want to be available for them when they look to the state for some supplemental support. COMMISSIONER USER thought the financial aspects of this annuity simply would not make it viable. The administrative costs are to come out of proceeds. I takes a tremendous amount of capitalization to be able to generate sufficient money to pay market return on those investments as well to absorb the rate. She also didn't think it was realistic to say that 50% of the people were going to participate in the program. And the people who do participate are probably the people least likely to need supplemental income when they are older. The fact is that most people take their dividend and spend it on current monthly needs, so assuming there is going to be a high participation level is not realistic. Thirdly, she said, the there are financial institutions that have savings programs. Certainly we would like to encourage savings for our future years. The Department of Revenue has developed a direct deposit program so people can have their dividend check deposited directly into their savings account. Fourth and finally, she didn't think it was the right time for the state to be setting up new government bureaucracies. SENATOR LEMAN thanked Commissioner Usera and said that he would like additional input from her in the future. Number 450 MARY LOU MEINERS, American Association of Retired Persons, supportED SB 6. SENATOR LEMAN thanked everyone for their participation and adjourned the meeting at 10:46 a.m.