Legislature(1993 - 1994)
02/03/1993 09:06 AM Senate STA
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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.
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