HB 47-MUNICIPAL PERS CONTRIBUTIONS/INTEREST  3:40:15 PM CHAIR MEYER called the committee back to order and announced the consideration of House Bill 47 (HB 47). 3:41:00 PM REPRESENTATIVE NEAL FOSTER, Alaska State Legislature, Juneau, Alaska, sponsor of HB 47, provided an overview as follows: HB 47 provides relief for communities who have lost 25 percent or more of their population in the last census, it does this by reducing the required payments to the [Alaska Public Employees' Retirement System (PERS)]. Galena, for example, lost 30 percent of its population in the last census and this was largely due to the closure of the U.S. Airforce base in Galena. Municipalities must pay into PERS based on their current salary level and at a minimum they must pay based on what their salary level was back in 2008. The rational is that local governments usually either grow or they stay the same, but they don't typically shrink. The problem is Galena's salary level did shrink and it shrank in half from $1.5 million in 2008 to $770000 in 2012; but, according to PERS, Galena has to make payments to PERS as if it still had a $1.5 million workforce. Galena simply does not have the resources to pay into the retirement system for workers that they do not have, so they are faced with two options; they can either let the amount that they owe grow and currently that bill is $1 million, or they can simply shut the doors and turnout the lights and close-up shop. So, we are hopeful that we can find a compromise with this bill, Galena would still owe for the bill that has been accumulated, but they would be provided some relief as they go forward. SENATOR GIESSEL asked if the bill has been previously presented to the Legislature. REPRESENTATIVE FOSTER answered that the legislation has gone through the Legislature several times but has not "crossed the finish line." He noted that HB 47 is the first time the legislation has made it to the Senate. 3:43:34 PM PAUL LABOLLE, Staff, Representative Foster, Alaska State Legislature, Juneau, Alaska, provided an overview of HB 47 as follows: In 2007-2008, we had SB 125 that pooled the PERS systems in the individual municipalities which used to be siloed systems and in that pooling we required a 22-percent payment of their gross salaries; there was concern during discussion on that bill that what you might have with that system is municipalities laying off employees so they can put them out on contract thereby reduce their contribution and yet their liability remains the same, and it would distribute that to the rest of the PERS employers. A couple of different options were looked at for addressing that, what was settled upon was the 2008 floor, which is you have to pay it at the 2008 floor or gross salaries, which ever is greater. Existing statute also had the penalty payment for delinquent payments, if you didn't make the full payment then it's one-and-a-half times the actuarial amount or in our case is 12-percent interest on delinquent payments. 3:45:02 PM He provided a sectional analysis as follows: Section 1  Clean up language that is needed for implementation of section 4 that the administrator is authorized to determine the rate of interest assessed under the statute referenced in section 4. Section 2  Portion of the bill that addresses the 2008 floor problem. What it does is put a new subsection under subsection (a)(2) that allows for the floor to be reestablished for FY2012 if the community has lost more than 25 percent of its population between the 2000 and 2010 census. Section 3  Conforming language. Section 4  Addresses the delinquent interest payment that is at 12 percent. The current version of the bill allows the administrator to negotiate the interest rate for delinquent payments. In several iterations of the bill we had gone through different ideas of setting different rates, deliberation led us to the conclusion that setting the rate in statute was problematic to begin with. The administration would have liked to have helped them with their burden, but they are directed to charge 12-percent interest and there's nothing they can do about it, so we give them the ability in these situations to negotiate that interest rate. MR. LABOLLE addressed the cost of not implementing the bill as follows: Right now, they have about a $1.5 million outstanding balance they owe the state. As that accrues, you run into different scenarios where the state could cutoff community assistance, bar them from participating in certain revolving loan programs, and you could end up at a place where the city can no longer function, and bankruptcy is not an option for municipalities in the State of Alaska. Cities can dissolve but they can't dissolve unless they pay all of their debts, and if they can pay all of their debts they would not be in the situation. What that leaves them with is basically they could turnoff the lights and give the keys to the state in which case we would now be on the hook for the entire amount rather than paying on their current salaries and or the new established floor. 3:48:01 PM CHAIR MEYER asked how many communities would be affected by the bill. MR. LABOLLE answered that there are five communities that meet the population metric: Atka, St. George, Pelican, Galena, and Anderson. He detailed that actuarial analysis cites only three communities that are affected, that being: Pelican, Galena, and St. George. He added that St. George was not an ongoing issue. CHAIR MEYER asked why St. George was not an ongoing issue. MR. LABOLLE replied that Kevin Worley from the Division of Retirement and Benefits could better address Chair Meyer's question. CHAIR MEYER asked what Galena's economy is. MR. LABOLLE detailed that Galena functions as a sub-regional hub in addition to fishing. He reiterated that Galena's main economy used to be the Air Force base which closed. CHAIR MEYER said he knew Galena's base closing caused a population decrease. He asked if the population will ever go back up to the level prior to the base closing. REPRESENTATIVE FOSTER noted that Galena also has the Galena Interior Learning Academy and students from throughout the state attend the academy. SENATOR WILSON noted that the Air Force left Galena with substantial assets that the community could leverage to pay off some of its debts. MR. LABOLLE concurred that assets were left. He admitted that the question remains as to how much is an asset and how much is a liability. He noted that one asset that has been a major help to Galena has been the fuel that was left behind by the Air Force, the fuel has been used to offset the community's fuel bills. 3:50:44 PM CHAIR MEYER asked what happened in the other communities that caused the population decreases. MR. LABOLLE explained that Pelican was impacted by the closing of its processing plant. He admitted that he did not know the reasons for Atka, Anderson, and St. George. SENATOR WILSON asked what the cost is to the state from the communities' population decreases and reduced PERS contributions. MR. LABOLLE deferred the question to Mr. Worley. 3:52:27 PM CHAIR MEYER opened public testimony. 3:52:33 PM SHANDRA HUNTINGTON, City Manager, City of Galena, Galena, Alaska, testified in support of HB 47. She disclosed that she was born and raised in Galena and served as the city clerk and currently as city manager. She said she would explain the importance of HB 47 for communities like Galena that have seen significant population decline between 2000-2010. MS. HUNTINGTON specified that the Air Force base in Galena closed October 1, 2010, but the shutdown process started in 2006. She explained that prior to the base's closure the population in Galena was 675 residents, after the closure there were 470 residents. She added that a flood occurred in 2013 that led to a disaster declaration for Galena. She detailed Galena's PERS contribution challenges and noted that the law was not designed to consider sharply declining populations from events outside of decisions made by the city. She explained the city's financial challenges in dealing with a cashflow crisis. She set forth that HB 47 will not undermine the underlining goals and structure of PERS while helping to ensure municipalities facing significant population loss are able to continue contributing to PERS. 3:59:48 PM CHAIR MEYER asked if there were assets left by the Air Force after the base closing. MS. HUNTINGTON answered that the Air Force left one million gallons of fuel. She noted that the fuel was specifically left for the Galena Interior Learning Academy, but the fuel has nearly run out. She disclosed that Galena had to take out a $4 million loan to upgrade the heating system and water utilities that were left in poor condition by the Air Force for the city to receive a grant. She added that the buildings left by the Air Force were built in the 1960s and require maintenance. 4:01:16 PM At ease. 4:02:00 PM CHAIR MEYER called the committee back to order. He asked Ms. Huntington if there was any hope for Galena's population coming back. MS. HUNTINGTON answered that Galena always has hope. She noted that the city has the Galena Interior Learning Academy. She opined that the city can grow, but maintenance will have to occur to the buildings and infrastructure at the closed Air Force base. 4:03:23 PM KATHIE WASSERMAN, Executive Director, Alaska Municipal League, Juneau, Alaska, testified in support of HB 47. She concurred with previous testimony that the legislation related to HB 47 has been around for quite some time. She noted that Pelican's population drop occurred when a cold storage business closed in 2002 but noted that the community had paid off its PERS debt. She explained that St. George no longer has PERS employees, but their PERS debt remains. She explained that the population decreases in the five communities was due to circumstances outside of the communities control. 4:07:00 PM CHAIR MEYER asked if additional communities can be expected to have population decreases in the future. MS. WASSERMAN answered that she did not have numbers to back her response but opined that populations will stabilize but the debts will not go away. CHAIR MEYER noted that Ms. Wasserman addressed SB 125 in her overview and asked if that the bill passed in a previous Legislature. MS. WASSERMAN specified that SB 125 was PERS legislation passed by Senators Hoffman and Stedman in 2006. CHAIR MEYER asked if the state went to the defined-retirement plan in 2006. MS. WASSERMAN answered yes. SENATOR GIESSEL addressed PERS employee-count data from FY2008- FY2016. She noted in FY2016 that Galena had 18-PERS employees, 0 in Nenana and St. George, and 5 in Pelican. MS. WASSERMAN remarked that a lot of the communities have gone out of their way to not let go of employees because they do not want to trigger a termination study. CHAIR MEYER asked why the time frame of 2000 to 2010 was chosen. MS. WASSERMAN surmised that it was when "this legislation started." 4:11:27 PM CHAIR MEYER closed public testimony. CHAIR MEYER asked Mr. Worley to address the bill's fiscal notes. He asked if there were two fiscal notes and one forthcoming. 4:12:08 PM KEVIN WORLEY, Chief Finance Officer, Division of Retirement and Benefits, Alaska Department of Administration, Juneau, Alaska, stated that HB 47 has no fiscal impact on the division. He explained that the division would provide updated actuarial numbers and a new fiscal note soon. CHAIR MEYER pointed out that the fiscal note that he reviewed was dated FY2017 when the bill was introduced. He detailed that it showed $121,000 for FY2018, and then $112,000 for FY2019. He asked if those numbers will be adjusted. MR. WORLEY answered correct. CHAIR MEYER asked him to confirm that the bill modifies the 2008 salary floor and it has to do with the 25-percent decrease in population between 2000-2010. He asked why time range was between 2000 and 2010. MR. WORLEY answered that the years were based on the U.S. Census from 2000 and 2010. CHAIR MEYER asked if the 25-percent population decrease only applies to the five communities. MR. WORLEY answered yes. He noted that the division confirmed the five impacted communities participating in PERS with the Department of Commerce, Community, and Economic Development. 4:14:31 PM CHAIR MEYER asked if there could be other communities asking for the same relief in the future or if the bill precludes the state from providing relief again. MR. WORLEY answered that the legislation was very date-specific between 2000 to 2010 and only deals with the five communities. He believed that new legislation would have to be enacted for communities that suffer the same decline in the future. CHAIR MEYER admitted that population loss in smaller communities is concerning due to fragile economies. He asked Mr. Worley if he believed that the fiscal note will be presented soon. MR. WORLEY answered that he will present the fiscal note the following day. 4:16:05 PM CHAIR MEYER held HB 47 in committee.