HB 299-PERS PARTICIPATION: CONTRACTORS  4:46:27 PM CHAIR OLSON announced that the final order of business would be HOUSE BILL NO. 299, "An Act excluding certain persons from participating in the Public Employees' Retirement System of Alaska." 4:46:44 PM REPRESENTATIVE TAMMIE WILSON, Alaska State Legislature, speaking as the sponsor of HB 299, paraphrased the sponsor statement, as follows: [original punctuation provided] HB 299, is being brought forward on behalf of the 501(C)3, nonprofit corporation volunteer fire departments within the Fairbanks North Star Borough, operating as "independent contractors". They are currently under contract with the borough to provide emergency response services. Each nonprofit fire department has both full time paid employees and trained volunteers as emergency responders. Each of these organizations provides benefit plans for all members. Dolan vs King County was a lawsuit between the County and independent non-profit organizations which provided indigent legal services to the county. Over a period of thirty years, King County asserted increasing budgetary and day to day authority over the formerly independent non-profit organizations. In doing so, it asserted more control over the groups that provided the services. Employees of the organizations sued the County for the state employee benefits. They argued that the County's funding and control over their "independent" organizations essentially made them state employees for the purposes of participating in the Public Employees Retirement System (PERS) and under pertinent statutes and common law principles, the Supreme Court agreed that employees of the organizations were "employees" under state law, and, as such, were entitled to be enrolled in the PERS. HB 299 would clearly define who is eligible for the Public Employees' Retirement System of Alaska and give added protection to municipalities against such liability. In times of such fiscal strife this legislation would encourage the exploration and utilization of cost effective measures for services and promote independent organizations and business. This bill emphasizes the need, however, to maintain the proprieties of the independent relationship when contracting for the provision of essential public service. I would appreciate your support of HB 299. REPRESENTATIVE WILSON added that Washington passed a similar law to prevent further litigation. 4:49:05 PM CHAIR OLSON asked how many fire service areas would be affected. REPRESENTATIVE WILSON responded that Fairbanks has five and Ketchikan has the same issue. CHAIR OLSON indicated that the Matanuska-Susitna region may have as well. REPRESENTATIVE WILSON, as an aside to Representative Colver, said Fairbanks North Star Borough has approximately 109 road service areas. Representative Wilson pointed out [Identifier: DOA-DRB-HB299-03-18-16] is a zero fiscal note. She paraphrased the sectional analysis, as follows: · Section 1 Contractors and employees of contractors are excluded from this plan · Section 2 "same thing" · Section 3 adds "a person who is compensated on a contractual or fee basis" REPRESENTATIVE WILSON advised that Section 3 would not impact the "university fire service area" employees, who are members of the Public Employees' Retirement System (PERS), because the contract with FNSB is with the University of Alaska. REPRESENTATIVE KITO inquired as to whether individuals are covered under another retirement plan. REPRESENTATIVE WILSON said yes. She added that those affected by the bill have their own medical and retirement plans; however, they are not employees of FNSB and would not qualify for PERS. In further response to Representative Kito, she explained that in Washington, a nonprofit that was providing services sued for coverage under the county system and prevailed. Subsequently, Washington clarified its laws related to who is a contractor and who is an employee; the purpose of HB 299 is to clarify that contractors who contract with municipalities are separate entities, and therefore are not eligible for membership in PERS. 4:52:38 PM REPRESENTATIVE JOSEPHSON directed attention to the sponsor statement and read [in part]: In times of such fiscal strife this legislation would encourage the exploration and utilization of cost effective measures for services and promote independent organizations and business. REPRESENTATIVE JOSEPHSON asked whether HB 299 was designed to help privatize employees who are now public employees. REPRESENTATIVE WILSON said absolutely not. REPRESENTATIVE HUGHES asked whether a problem related to this issue has arisen. REPRESENTATIVE WILSON answered that "being proactive is much better and much more affordable." REPRESENTATIVE COLVER questioned how contracts with firefighters are established. REPRESENTATIVE WILSON explained that there is a mill rate for each fire service area, which is separate of the contract between FNSB for emergency medical services (EMS) that are paid by the number of ambulance calls made. REPRESENTATIVE COLVER surmised EMS is provided by the private sector or a 501(c) 3 nonprofit entity that is not housed in a FNSB fire department facility. REPRESENTATIVE WILSON clarified that EMS is part of the fire department; the fire service protection is based on a mill rate and EMS is a different area paid by a contract with FNSB. The ambulances, and volunteer and paid responders, are housed in the fire station. 4:55:29 PM REPRESENTATIVE COLVER concluded that EMS coverage is not by a service area, but is area-wide. He asked about the chain of command. REPRESENTATIVE WILSON said the staff is directed by the fire chief and an EMS (indisc.). In further response to Representative Colver, she affirmed that the contractual relationship is just between FNSB and the fire service area. REPRESENTATIVE COLVER questioned whether previous part-time employees have asked to be covered by PERS. REPRESENTATIVE WILSON said no. The employees are covered by their own plans and work fulltime or part-time for the fire service area. REPRESENTATIVE COLVER recalled that in the Matanuska-Susitna (Mat-Su) Borough, EMS staff is hired by the borough; however, in order to avoid paying benefits and retirement, employees were kept on part-time status, and this led to a legal action against the Mat-Su Borough over employees' right to PERS. He cautioned that "this area of this PERS with the fire department and the EMS employees is a very expensive proposition for, for government." REPRESENTATIVE WILSON restated that the proposed legislation addresses independent contractors, and none of these [employees] are employees of FNSB. The Mat-Su Borough hired people on a part-time status, but these [individuals] are hired by the fire service areas as independent contractors. 4:58:48 PM MITCH FLYNN, Fire Chief, Steese Volunteer Fire Department (SVFD), informed the committee SVFD is a 501(c)3 nonprofit organization in Fairbanks, and an independent contractor with the Fairbanks North Star Borough (FNSB) that provides fire and EMS services within a service area on an annual basis. Recently, FNSB revealed problems with SVFD's contracts that may pose a financial liability risk to fire service and EMS service area taxpayers. Although improvements to its contracts have been made, SVFR remains concerned about a possible claim from a current or past employee who may sue for PERS benefits. The purpose of HB 299 is to eliminate the aforementioned threat to PERS, and is not to prevent the fulfillment of current contracts, or to remove employees currently receiving PERS benefits from the system. Mr. Flynn said there are six nonprofit fire departments statewide which contract with municipal governments to provide fire and EMS services. The Steese Volunteer Fire Department has its own medical and retirement benefits programs and members do not intend or expect to participate in PERS. He asked the committee to support HB 299 in order to protect PERS and those employees who are rightfully entitled to PERS membership. REPRESENTATIVE COLVER asked whether it is problematic for municipalities to contract with nonprofits or others, and seek an exclusion from PERS. 5:02:37 PM KATHY LEA, Chief Pension Officer, Division of Retirement and Benefits, Department of Administration, said it is common for municipalities to contract-out for certain aspects of their work; however, from the perspective of PERS, it is important for independent contractors to remain independent from the control of the municipality related to finances, behavior, or physical arrangement. If not, the independent contractor is no longer independent, and can be considered an employee. REPRESENTATIVE COLVER inquired as to the hours an employee is required to work to be entitled to PERS. 5:03:49 PM MS. LEA said the threshold for part-time service is a minimum of 15 hours regularly scheduled every week, and fulltime service requires at least 30 hours of work regularly scheduled every week. 5:04:21 PM CHAIR OLSON announced that public testimony would remain open. [HB 299 was held over.]