MINUTES SENATE FINANCE COMMITTEE January 21, 2000 9:06 AM TAPES SFC-00 # 7, Side A and B CALL TO ORDER Co-Chair John Torgerson convened the meeting at approximately 9:06 am. PRESENT Co-Chair John Torgerson, Senator Al Adams, Senator Dave Donley, Senator Lyda Green, Senator Randy Phillips, Senator Gary Wilken, Co-Chair Parnell Also Attending: Senator Taylor and Senator Elton Bruce Richards, Special Assistant, Department of Corrections; Larry Persily, Deputy Commissioner, Department of Revenue; Nanci Jones, Director, Permanent Fund Dividend Division; Marsha Partlow, State GED Director, Department of Labor & Workforce Development; Jean Smith, Legislative Assistant, Senator Mackie; Guy Bell, Director, Division of Retirement & Benefits; Bill Church, Retirement Supervisor, Division of Retirement & Benefits; Earl Clark, former Professor, University of Alaska; Project Coordinator, Department of Public Safety; Clarke Damon, former state employee. Attending via Teleconference: Blair McCune, Deputy Director, Public Defender Agency Michael Dean SUMMARY INFORMATION SB 1-NO MANDATORY PAROLE RELEASE WITHOUT GED The Department of Corrections, Department of Revenue, Permanent Dividend Fund Division and the Department of Labor & Workforce Development testified. A Committee Substitute was amended and adopted. The bill was held in Committee. SB 85-CREDITED SERVICE FOR TEMP EMPLOYEES:PERS The Division of Retirement and Benefits, as well as members of the public testified. The bill was held in Committee. SB 123-PUBLIC INTEREST LITIGANT: FEES This bill was scheduled but not heard. CS FOR SENATE BILL NO. 1(JUD) "An Act conditioning the award of good time and release on mandatory parole on the attainment of certain minimum educational standards for prisoners serving certain sentences." Co-Chair Torgerson noted that a Committee Substitute (CS) was before the Committee regarding this legislation. Senator Adams clarified that when SB 1 was before the Committee last session, he introduced an amendment and was not sure if it had been adopted. The intent of this amendment was to increase the "good time" allowance by 60 days, once a General Educational Development Diploma (GED), was acquired by an inmate. It was determined that this amendment was not moved. Senator Donley stated that Alaska has made tremendous progress in criminal justice laws over the last decade. Crime does not pay in Alaska anymore. Back in the 60's these laws were embarrassingly lenient for murder and other various crimes. Now people are serving longer sentences and crime has gone down. Senator Donley felt as though there was a direct relationship here, partly due to the progress that this legislature has made, sometimes in objection to the Administration. Alaska still has one of the most liberal "good time" laws in the United States. It is also very difficult for someone to lose his or her good time. Presently the law allows for an individual that behaves well to be able to reduce their sentence by one- third. The national standard, both federal and state, is 85 per cent. In Alaska an individual usually only serves 66 percent of his sentence while incarcerated. Senator Donley stated that the biggest single factor for whether people behave themselves once out of prison is whether or not they can read and write. The correlation between people who cannot read and write and recidivism is very high. This legislation attempts to give an incentive to those prisoners, while incarcerated, to read and write, by offering them a chance to a full "good time" reduction. The original legislation proposed that a prisoner would only get two-thirds existing "good time" if they did not learn to read and write. The CS before the Committee reduces this to only a one-twelfth reduction of the available "good time," if they do not learn to read and write. Unfortunately the fiscal impacts of holding back one-third "good times" are high, but he thought the department's estimates of how much more time people would spend in prison was exaggerated, even though it is hard to predict these things. The concern of the Committee last year was the fiscal note, which was at about $800,000. Over the interim Senator Donley's office worked on two things: reducing the fiscal impact by reducing the amount of time that is offered as the incentive and seeking funds sources in an attempt to balance the fiscal note. Last year, they worked with Senator Halford's SB 4 and SB 219 regarding victims programs and added several revenue generators there. The money estimated from these generators, were in excess of what the programs would actually cost. They rolled these revenue generators into a CS for this bill. Unfortunately, they have not been able to get an estimate from the Administration regarding how much monies would be created as a result of these generators. Senator Adams asked if this piece of legislation was necessary. He referred to the Alaska Statute 12.55.015.10, which states that the judge or the court system can order the defendant (while incarcerated) to participate or comply with a treatment plan of the rehabilitation program that is related to the defendant's offense. He noted that they already have the ability to impose the requirement of obtaining a GED. He made mention of this present legislation's fiscal note and how money could be saved by not adopting it. He also mentioned that this legislation calls for taking permanent fund monies away from individuals, but he noted that there are already agencies in place, which depend on receiving this money. Senator Phillips asked about language on page three, section four, regarding the state holding a prisoner's permanent fund dividend (PFD) for one year after they are released from prison. Senator Donley responded that this was the language of the existing law but that in the new legislation this time frame would expand to two years. He explained that presently, when a person commits a felony, the law states that the first year they get out of prison, they will not get their permanent fund dividend, but they do get it afterwards. This new legislation states that they would not receive it for two years, for those individuals committing a felony. Co-Chair Torgerson noted that it would be hard to quantify the money generated from permanent funds unless release dates of the defendants were specifically known. He stated that he did not disagree with this legislation and felt it was important to mandate education under these circumstances. He added that there still is a fiscal note problem and that because of this, they must look at alternative methods. Senator Green stated that she understood what this legislation was attempting to do, but she wondered how the individual who already has their high school diploma or even a college degree would have an incentive to further their education. She asked if this new legislation creates a situation for discrimination. Senator Donley responded that this legislation was designed for people to acquire at least the threshold of an education. He stated that he would have no problem with inmates continuing their education beyond. Senator Green noted that the State would not want to pay for this continuing education though. Senator Donley added that for someone to be able to read and write is essential, especially once they are released from prison. In response to Senator Adams concern, there is no way to order these individuals to work towards obtaining a GED. This legislation creates a more specific incentive for individuals to participate in these programs even if the court has not ordered them to do so. Senator Green inquired about the development of waivers, in terms of who would not be required to take a test. She asked how parameters were established. Senator Donley noted that the waivers would be for somebody found incapable. Occasionally there are people without the mental capacity to realize a GED. If English is not a person's primary language, or if the person's age or social background is such that the Commissioner determined that they were unable to meet this educational requirement, these inmates would be disallowed. This would ensure that they are not unduly or unfairly discriminated against. Senator Green thought that because this waiver is so broad, most Commissioners could find a reason to require someone to obtain his or her GED. She noted that the Committee was not trying to diminish what was already in the law, by adding these waivers. She thought this question of pre- testing an individual was more complex than it appeared to be and wondered if Senator Donley's staff had met with an educator to work out these details. This pre-testing issue could become a bigger issue than requiring a GED, in light of prisoner's rights. Senator Donley responded that it was his understanding that the department already pre-tests everyone that comes into their system, establishing education levels. Senator Adams stated that through this legislation the prisoners are motivated more by negative incentives. The present law allows for one-third off for good time, but instead this legislation goes back to one-twelfth off which is 25 percent more time in prison. He noted that the sponsor of this legislation wished to lower the fiscal impact by taking prisoner's PFDs and noted that there are other agencies already in line for these funds. He felt as though the Committee should leave the existing statute in place, while at the same time accepting his amendment in order to keep the cost of this legislative down. Senator Wilken asked about the period of time that a prisoner's permanent fund is held from one year to two years. He wondered if the only purpose of this is to fund the bill. Senator Donley stated that the Committee had already passed the related funding out in another piece of legislation and he referred to SB 219. Co-Chair Torgerson added that the Senate was that high up yet on SB 219. The Senate passed this legislation out, but now it is over on the House side. Senator Wilken spoke to page two, line nine regarding a high school diploma and asked if this bill took into account an exit exam requirement, which is now law in the State of Alaska. Senator Donley responded that an exit exam is required for anyone, so it applies here also. This bill should not have to explicitly state this as such, although this was certainly Senator Donley intent. Senator Wilken asked about someone without a high school education, which becomes incarcerated, and obtains a GED while in jail. Would they receive a "good time" advantage over someone who already has their high school diploma, he asked. Senator Donley stated that these individuals would. One of the original versions of the legislation had a provision for continuing education programs and "good time" incentives, but it also had a high fiscal note impact. Senator Wilken responded that he agrees with what Senator Donley is attempting, but added that if a prisoner already has a high school diploma, they are at a disadvantage for obtaining "good time" incentives. Senator Green noted that if someone flunked the GED test, they would be allowed to take it again within a year, and two times the next, etceteras, not to mention the cost of the tutorial. She reminded the Committee of discussions some three years ago regarding the change to the post secondary education loan program. There was great pressure placed on the legislature to approve the right of prisoners to apply for loans, while still incarcerated. She stated that she did not want to revisit similar conversations. Senator Donley wished to disagree with the characterization Senator Adams presented as to this bill creating a backward system for "good time." He felt it was a step forward and reiterated Alaska's liberal "good time" allowances and comparable percentages with other states. This legislation helps to make individuals more accountable for their crimes and adds incentives for education. He then clarified the related fiscal calculations and noted that the fraction was based on one-third rather than the full "thing." Senator Adams responded that he still maintains this legislation goes backwards. The Committee has worked hard on missions and measures. One of these, for the Department of Corrections, is that their facilities promote positive changes. This legislation goes backwards against policies they are trying to set up, which is a good education. This legislation is unnecessary since such provisions are already established in present law. BRUCE RICHARDS, Special Assistant, Department of Corrections referred to the previous discussion about "good time" numbers in Alaska. The national standard for "truth in sentencing" is at 85 percent. He added that Alaska has very tough sentences. On an average most states with 85 percent "truth in sentencing" still serve less time than those do for murder in the first and second degree. He checked with the Office of Justice and Bureau statistics. He found that "truth in sentencing" state inmates serve less time than prisoners do in Alaska. The way the Department of Corrections reads the bill, if someone fails to get their GED and they are deemed capable, they would be entitled to a one-twelfth "good time" reduction. This means they would serve 8 percent less of their full sentence, as opposed to 33 percent less. It is not one- twelfth of 33 percent, but one-twelfth of 100 percent. This means a reduction of one-twelfth off the total sentence, rather than one-twelfth of the current statutory "good time" at 33 percent. Co-Chair Torgerson noted that this was an important point. He clarified whether Senator Donley was calculating this as one-twelfth off of the one-third amount or not. Senator Donley stated that this is what the Committee was trying to accomplish. Mr. Richards referred to page two, line 19 of the proposed CS, "one-twelfth of the term or terms of imprisonment." If someone failed to acquire their GED, they would be entitled to one-twelfth of the term or terms of imprisonment, rounded-off to the nearest day. Co-Chair Torgerson pointed out that if the Department does institute one-twelfth of the "good time" credit, the fiscal note would change to reflect this. Mr. Richards suggested that the amount of credit to be deducted should be increased not by taking a percentage of the statutory "good time" in place. If the Committee wanted this number higher, they could set the number higher than one-twelfth, rather than building steps into the formula. He also referred to a pertinent memo that he previously submitted to the Committee as having an incorrect fiscal note, which should actually be greater than what was noted there. Co-Chair Torgerson recommended the Committee adopt the CS along with pertinent language changes so the Department could submit an updated fiscal note along with the bill's next hearing. Mr. Richards responded to a question posed by Senator Green regarding a prisoner who might serve 12 years and factoring "good time" estimates in their sentences. He noted that if someone were originally sentenced for 12 years, under current statute, they would get a 33 percent reduction for statutory "good time," which would be four years. Under the CS, if a prisoner came into the system with a current diploma, they would still get four years off. If they came in without a diploma, obtained it while they were incarcerated before the date that they would normally come under "good time," they would be entitled to the same four years. This would change for someone who failed to obtain their GED, after determining they were capable without any extenuating circumstances, such as English as a second language, or their age or social background comes into play. They then would be entitled to a one-twelfth reduction, which translated to an eight-percent reduction in their sentence. Mr. Richards refreshed the Committee's recollection; those issues discussed last year. There are no other states, which would have imposed legislation such as this, requiring a person to obtain a GED in order for them to qualify for "good time." Florida entitles a prisoner a 60- day meritorious "good time" credit if someone obtains a GED. The only state that comes close to this is Tennessee. They have never enforced the taking away of "good time," due to overcrowding in facilities. The Department of Corrections believe that this same goal could be reached by giving everyone a 33 percent statutory "good time" reduction, along with a 60 day credit for obtaining a GED such as Senator Adams suggested. Co-Chair Torgerson noted that it was his understanding there might be a new federal regulation pending that would require educating prisoners under the age of 22. They would use the public school system to educate inmates under the age of 22 by federal requirement. This possibility needs to be considered in light of the number of inmates estimated in the system presently at 411 inmates under 22 years of age. These inmates would possibly be educated by running them through the foundation formula and paid for by the Department of Education. If this does happen, it would change the way he viewed this legislation. He wondered what the number of inmates was over the age of 22 that have their GEDs. It was his understanding that under this proposed federal regulation, there would be at least 100 inmates in Spring Creek who would qualify for an education. Senator Donley referred to the Department of Correction's memo and noted that there are other states that are trying to get inmates educated through an array of programs. He felt that on a national level, basic education for prisoners is a good thing. He asked how other states try to reconcile the issue of those prisoners who already have their GED, giving those inmates without one, an advantage. Mr. Richards responded that the department did not ask states how they have reconciled this situation. The Alaska Department of Law feels that the state would prevail because of the interest of providing educational opportunities for inmates. They are certain that lawsuits would be filed, but in this event, the state would most likely prevail. Senator Donley noted that if Alaska was already at the national standard now, an 85 percent "truth in sentencing" situation, he would support Senator Adam's amendment for additional time off. His concern was that Alaska is only at 65 percent, which is why he was reluctant to add more "good time" into this formula. Senator Donley referred to Mr. Richards's memo that made reference to Virginia and its literacy requirement where inmates are ineligible for the maximum amount of "good time," if they chose not to participate in literacy programs. He asked if this was not the same as what the Committee was presently proposing. Mr. Richards noted that this issue referred to by Senator Donley was in regards to parole and he further stated that while inmates are not denied parole strictly for refusal to participate, further participation is stressed for those whose parole requests are turned down. This was more of a parole issue, rather than "good time." Senator Adams questioned the fiscal note. He realized that a new one would be adopted once the CS was also adopted. He reiterated the permanent fund provision and asked if the Department of Corrections was able to determine what agency had first priority over an individual's PFD in order for the Committee to determine how much money overall would be available for this program. Tape: SFC - 99 #7, Side B, 9:54 p.m. MR. PERSILY, Deputy Commissioner, Department of Revenue stated that he was before the Committee on behalf of the Child Support Enforcement Division. Under the current law, child support has first priority for garnisheeing the permanent fund dividend. He stated for the record that the Department of Revenue and the Division opposes further attempts that would limit the amount of money garnisheed for child support debt. The more recipients that are cut off this list, the less money the division will get for child support. This past year, the Division of Child Support Enforcement collected about $14.5 million from dividends. There is no exact way to know if the proposed CS before the Committee is adopted, how many dividends for garnisheeing would be affected. It is guesswork now in terms of how many dividends they are losing. It would also depend on whether the former inmate chooses to stay in the state. Individual case files would have to be pulled in order to see, when an inmate was released, where they moved to, whether or not they are still eligible, etceteras. "Under this proposed CS, there would be several hundred additional people who currently qualify for a dividend who would not under the provision that an inmate would lose their dividend to a second year." Co-Chair Torgerson asked if under current law whether or not they take the first year's dividend once an inmate is released. He asked if the division files for this dividend automatically or does the inmate file, following by the state garnisheeing it. Mr. Persily stated that the Department of Corrections gives the Permanent Fund Division a tape of people who have served time, and then the division runs it against past applications. They look to see if an applicant received a dividend and whether or not he or she is a felon. "We assume they were eligible before, they will be eligible this year, we come up with a number, multiply that by the amount of the PFD and tell Office of Management and Budget this is how much money is available because these people are not eligible." The inmate does not apply, the department comes up with a quasi-educated guess regarding how many people are not eligible and then this money is made available and appropriated to Gate Money, Violent Crimes, Compensation Board, Sexual Offender Programs, ecetera. Co-Chair Torgerson noted that if this were the case, then Mr. Persily's prior testimony regarding an inmate moving out of state is irrelevant in terms of one or two years, if this number is just an estimate. Mr. Persily agreed but noted that this makes it harder to estimate, because right now if someone is eligible this year, it is assumed that they are eligible as long as they are in state custody. "We have two years and we do not know where they are anymore, it makes it even harder to guess." Senator Green wanted to confirm that no name identification was included along with the Department's request to the Permanent Fund to get a total for the number of PFDs. Mr. Persily stated that he believed the Department of Corrections provides a tape with names of people in custody on it. This is then matched against Permanent Fund Dividend records in order to ascertain who was eligible in past years, but who are now in state court due to a felonious charge. Co-Chair Torgerson asked if this meant that if someone was arrested before they were eligible for the dividend that they would not garnishee the dividend the first year after release. His understanding was that the department automatically filed for the inmates and there was some sort of mechanism to track this. He asked if an inmate becomes eligible for residency in Alaska, regarding a dividend, if he or she is incarcerated. MS. JONES, Director, Permanent Fund Dividend Division noted that there were two characteristics, which they keep in mind while reviewing the list from Corrections. If a person never applies for a dividend, they are obviously not eligible to receive one. If they applied and then were denied, they are not eligible. They would have to have established residency, become eligible for the program in order for them to count this as a positive. Senator Adams asked what percentage of the dividend garnisheed was used for child support. Mr. Persily stated that the Child Support Agency takes 100 percent of the Alaska Permanent Fund Dividend. Senator Donley asked for clarification. He understood the Department's motivation to protect the best interest of their clients, which are people entitled to child support. For one year that they could currently garnishee the dividend they would be able to, for some of those who got out of prison for a year, the department would not be able to take that person's dividend. The department could still go after an individual for child-support if the released prisoner was employed or had other means of support at their disposal. This bill would not preclude them from tapping into the permanent funds. Mr. Persily responded yes, but pointed out that in some cases this was their only source of revenue for support. Usually people who serve time in prison have limited earning potential. Co-Chair Torgerson asked if the department had any idea of the number of dividends they get from prisoners. Is there anyway to track these numbers. Senator Adams noted that this legislation taps into the permanent fund money and utilizes it towards lowering the cost of its fiscal note and he asked how much money would there be left after the agencies, first in line, had taken their chunk. He wondered if there was a way to track these amounts to see if there was anything left in a prisoner's account to apply towards this bill's fiscal note. Mr. Persily responded that if inmates were allowed to get their dividends or whatever monies left over, a person would have to pull the case files for all the inmates, look for any possible liens, or if all restitution or court fines were all paid off. In order to do this, all the case files would have to be pulled, which would be a lengthy process. Senator Donley asked whether these inmates' dividends go into a pool of funds based on the fact that they are incarcerated and not allowed to keep this money for themselves. He didn't think this question was answered clearly. Ms. Jones responded that this would be a pool of money that is diverted from the prisoners had they been eligible, they would have received "x" amount of money. The division notifies Office of Management and Budget, they in turn make this money available for appropriation to the various entities. She added that with the present CS there is a false sense of security about the second year. There is a disincentive for person's to file, knowing that their dividend is automatically going to be taken. Also, there is no tracking of this individual anymore, if in fact, they have completed 100 percent of their sentence. Unless, they filed for a dividend, the department could not count them according to the provision included in the CS. She noted that this was a phantom year, which the department could not quantify by conducting an actual head count. When someone is incarcerated, this can be done, to an extent. Senator Donley responded that the department presently deals with the current law, allowing for the first year an inmate is released by taking their dividend. He asked how this would be significantly different allowing for a two year time period. Ms. Jones pointed that for a year a person is incarcerated, the department knows this person is not eligible for a dividend, but their numbers are still tallied for calculation purposes. An inmate is not eligible for a dividend within a year after their release. "They are actively still in the possession of the state. The state reports that these people were incarcerated for these qualifying years. It is not an automatic, like you're saying, the year they get out they automatically get it. It's the year, the qualifying year before the dividend whether or not they were sentenced, all or part, of that calendar year, or either incarcerated. We know those numbers." She also noted, according to the Committee's CS, when these people are released (within the next year) the department has no idea whether these people still exist unless they apply for a dividend. They would have to state, that yes, I was incarcerated. The department could not assume that this person would still qualify for a dividend. A good revenue number cannot be generated because of the second, "phantom" year. Senator Donley added that the way to get around this issue would be to manipulate the dividend calculation allowing for the assumption that the same number of inmates were released, remained in the state but were illegible. This number could be rolled into the total calculation formula so that this amount of money would be received as normal for those persons currently incarcerated. This allowance would have to be spelled out specifically in this new legislation. MARSHA PARTLOW, State GED Director, Department of Labor & Workforce Development offered two technical amendments regarding the present CS (JUD) before the Committee. First, the words on line 9, "a general education development diploma." She noted that the actual title for this should be, "general educational development diploma." Second, for the Committee's consideration, the phrase on line 9 and 10, as it reads, "has obtained a high school diploma, a general educational development diploma or the equivalent." She noted that unless there was a definition of another equivalent diploma that she was not aware of, she believed that the wording should actually be on line 9, "has obtained a high school diploma or its equivalent, a general educational development diploma." Senator Donley responded that the intent of this section takes into account that maybe some other states would not have the same terminology as Alaska does. The matter of "equivalent" would apply to what other states or even other countries might provide for the same type of educational requirement. Ms. Partlow noted that this was a valid point and withdrew her suggestion for the second technical amendment. BLAIR MCCUNE, Deputy Director, Alaska Public Defender Agency testified by teleconference and noted that they had submitted an indeterminate fiscal note for this legislation. He added that the agency was concerned about an inmate who is incapable of obtaining a diploma and what the measures of assessment might be. [Inaudible.] If this becomes an internal departmental matter, they do not usually represent prisoners under these circumstances. He said it would be very difficult to determine whether someone is incapable of obtaining a diploma, whether due to time constraints or otherwise. He then made reference to the statute read previously by Senator Adams. Under current law the department handles quite a few cases where probation can be taken away before someone is released, which is called, "Anticipatory Revocation." This is used normally in the event where an inmate refuses to participate in treatment programs, such as substance abuse. In these cases, if an inmate refuses participation, some of their "good time" can be taken away. This process is explicitly laid out in statute. He was concerned that the refusal to participate in a GED program could become a more serious offense than participation in a substance abuse or sex offender program. Once the "good time" is taken away, the incentive to go through with these other rehabilitative programs would not exist. Mr. McCune then spoke to a concern about the current system, under the aforementioned statute, where the judge or the parole board has an opportunity to look at what the prisoner's efforts might be towards obtaining a GED. He used the example of an inmate who decides to "blow off" the GED and then another individual who is somewhat "slow," but nonetheless capable who works very hard right up until the end of their sentence and then fails. He felt there should be some kind of decision-making body to access the fairness of such situations. As a final comment, he noted that even with the existing "good time" laws in Alaska, jail terms are much longer than many other states. Co-Chair Torgerson stated that he would not mind adopting a CS in order to get a fiscal note before the Committee. He further noted that he would not mind receiving a fiscal note related to Senator Adam's amendment, in order to compare the two while making a final decision about this bill. Senator Donley moved for the adoption of the proposed CS with the addition of, on page two, line ten, changing the word "education" to "educational," and on page two, line 19, changing one-twelfth to one-fourth. Senator Adams added that he does not oppose the adoption of this CS, even though this piece of legislation is not necessary. Co-Chair Torgerson stated that hearing no objection to the adoption of this CS, it was so moved, with the minor changes at noted. He then asked that Mr. Richards supply the Committee with a relevant fiscal note, one for the adopted CS and one for Senator Adam's amendment. Co-Chair Torgerson stated that this legislation would be held over for further discussion. CS FOR SENATE BILL NO. 85(L&C) "An Act relating to credited service in the public employees' retirement system for temporary employment." JEAN SMITH, Legislative Assistant, Senator Mackie, read the sponsor statement into the record. This legislation was introduced at the request of Senator Mackie's constituents. She stated that SB 85 is an effective management tool for the state to utilize and minimize the impact of current and future budget reductions. The bill will have the effect of allowing employees to meet their retirement eligibility threshold sooner than would otherwise be anticipated. The employees prone to use this benefit retirement credit are employees with higher service totals on the higher end of the pay scale. Additionally, employer costs decrease when these employees are replaced through reduced costs to the supplemental benefit system and to the retirement systems. Savings are realized in the long term by replacing tier one and tier two category employees with tier three category employees in order to lower benefit costs. Currently these temporary employees can buy their temporary time, however, this time does not count towards their minimum service requirement needed for retirement. This amends Alaska Statutes by enabling the employees covered under PERS, to buy back their temporary time and have it credited towards the minimum service time for retirement. Last session, the Senate Labor and Commerce Committee amended this bill. On page one, line nine, after the word "retires," they added "an election under this subsection does not change the date that an employee is considered to have commenced participation in the system under Alaska Statute, 39.35.120." This language was added to clarify the original intent of this legislation, that employees who qualified under tier two could not use temporary time to qualify for tier one benefits. They added this language to strengthen the intent of this provision so it could not be misinterpreted to provide that flexibility. The fiscal impact on this legislation, since temporary service is recognized under the retirement system, provides that the full actuarial cost of using the temporary service be paid for by the employee. There is no general fund expenditure involved in this proposal. The Department of Administration's fiscal note reflects a designated fund source, the Retired Employees Retirement Trust Fund, contracted services are required for computer system modifications. Amendment #1: This amendment allows for the combination of Public Employees' Retirement System (PERS) and Teachers' Retirement System (TRS.) Senator Wilken moved for an adoption saying that the fiscal note affected about 50 people around the state. He also noted that it was not his intent to burden SB 85 with this issue, but he thought this might be a good time to discuss its ramifications. GUY BELL, Director, Division of Retirement & Benefits Department of Administration stated that the department supports SB 85. He then submitted a related fiscal note of $4,000, for programming time, to accommodate this change of allowing employees to count their temporary service to 20 and out, or 30 and out. It is the intent that the full cost to opt for the service credit provision be borne by the employee making that election. Mr. Bell then spoke to the amendment. It adds public service retirement benefit to the PERS statute. It would allow a person who has at least a total of five years of service in PERS and TRS combined, at least two of which are in PERS and paid (monies within the system.) This person could apply and receive a retirement benefit under PERS. Presently, a person must have a minimum of five years in PERS or eight years in the Teachers Retirement System. This would allow combined five years from both systems to qualify for a retirement benefit. He noted that this issue boiled down to fairness. These folks have paid in their contributions and the employer has contributed toward a retirement benefit as well. He pointed out there is a small number of individuals involved with this issue, roughly about 50 statewide. The individuals who find themselves in this situation (a no man's land), possibly years ago may have been working for state government and then switched from a PERS to TRS program. This amendment would effectively address a gap in the law, to allow these people to obtain a retirement benefit. If there is a difference in cost between what the system has built up through contributions and interest, and the expected pay out of benefits over the lifetime of the member, the employee would pay the actuarial cost at the time of their retirement. This amendment would have a zero fiscal impact because it does require the individual to pay any cost calculated beyond what is allowed by the system on that person's behalf. Co-Chair Torgerson noted that a few years ago, when this was offered, it had an attached fiscal note which read: "This change would not have a measurable impact on employee contribution rates, or the total funding ratio of PERS or TRS. It would increase the PERS unfunded liability by $492,000 and a TRS unfunded liability by $1.4 million. He asked if these 50 individuals would pick up the cost of $1.9 million of unfunded liabilities or was this situation rectified by the amendment. Mr. Bell responded that their actuary had not done this type of calculation. Co-Chair Torgerson assumed that something had changed in their system to account for such a discrepancy. BILL CHURCH, Retirement Supervisor, Division of Retirement and Benefits noted that the shifting of liability states the obvious, a movement of money from the TRS to the PERS system. As they look at unfunded liability, they look at assets over liabilities and come up with the difference. By shifting this money, this means that that there is less money in the total assets. This is where the statement as noted by Senator Taylor comes from. This represents monies that the actuary has not calculated as being paid out. In other words, the system has unrealized gain because someone has put in time, but they are not eligible for benefits. This money is still in the employer's account. What this has a tendency to do, not so much in TRS, since they work on a flat constant employer rate, but in PERS, it affects the amount of money in the employer fund. The larger this fund is, the lower the employer's rate tends to be. When someone puts their money in, the interest that is gleaned on this amount over time, (considering the employee leaves their contribution in the system), this money tends to push down the employer contribution rate. Through the proposed legislation, this money would be utilized by the employee, which explains the statement read by Co-Chair Torgerson. Technically, there is fundamentally no change to the rate of the fund itself, due to the amount of employees affected. Co-Chair Torgerson stated that he appreciated the explanation and added that he would require a zero fiscal note stating as such. SFC-00 # 8, Side A Co-Chair Parnell wondered about this bill and its purpose to rectify a situation similar to one that might take place in the private sector. He pointed out that people make career changes, from one job to the next, without a clear purpose to retirement benefits. He asked if this was part of the argument. Mr. Bell gave an extreme example of an employee who might work eleven and one-half years between PERS and TRS, 4 and one-half in PERS and 7 and one-half years in the TRS and not be eligible to receive a retirement benefit. Co-Chair Parnell noted that these are career choices that people make. Mr. Bell added that the least restrictive system is PERS, which requires a total of five years of service. If someone has less than five years of service in PERS, the only entitlement that someone would have, is to their own contributions plus interest. They are not entitled to retirement benefits. This new legislation allows for a person who has at least five years of service between PERS and TRS effectively, entitled to receive a retirement benefit in the future. This seems reasonable to the department. Co-Chair Parnell asked whether the judicial system came under a different retirement system. Mr. Bell answered affirmatively. Co-Chair Parnell asked how this department would be treated under a PERS and TRS scenario. If someone only had 4 and one-half years in PERS and then went to the Judicial system, could that person work a year in the latter and still link up for a benefit under this new legislation. Mr. Church responded that these two retirement systems were not linked at all. These have been set up as different retirement systems, focusing on specific groups of people. They were originally established individually and funded separately. The only current link between the systems, is between PERS and TRS. If a person is vested in one system they can apply for a conditional service benefit only if they have a minimum of two years paid in the other companion system. Each benefit and the rate an employer pays are separate. Co-Chair Parnell added that as a policy matter if it is good for one employee, it should be good for another. He asked if they had looked at the overall state retirement system to see how many different ones there were and how they could be linked if deemed appropriate. Mr. Bell responded that the basic retirement systems in the state are PERS, TRS, Judicial, and the Elected Public Officers Retirement System (EPORS) which is a 60-person retirement system and one that existed for a very short period of time. Senator Donley thought that the Employee Retirement Income Security Act (ERISA) required no more than a five-year vesting. He asked if the reason that TERS is eight years is because it is a state sovereignty question. Mr. Bell responded that the state was not subject to ERISA. Senator Green asked if this proposed legislation would apply only if someone qualified for benefits in neither system. Mr. Church responded affirmatively. EARL CLARK, former professor, University of Alaska, and Project Coordinator, Department of Public Safety testified in favor of the proposed legislation. He outlined for the Committee, his work history over the years, the combination of which did not count towards retirement. He built up service in both systems, but does not have a retirement. He stated that this legislation rectifies a situation for employees that have served the State of Alaska. CLARKE DAMON, testified in support of SB 85. He stated that his career was in education and throughout this period he participated in six different retirement programs. He receives $88 from the Carpenter's union. He then gave a detailed synopsis of his work history for the Committee. Mr. Damon calculated his contributions to each of the departments of which he had the opportunity to work for, along with the contributions made by the State into his retirement. As of July 1997, the balance of these funds was $69,000 for his contributions and $139,000 from the fund earnings. This retirement would work out to be $606.00 monthly, $237.00 for his benefit and $348.00 for health benefits. After 18 years from the date of retirement, the total unrealized benefit to Mr. Damon would total $584,000. Based on an average life expectancy, this total would go up to $704,000 at an eight-percent earnings rate of $4703.00 per month. At this present time, Mr. Damon is not eligible to receive any of these monies, due to the limitations of the present legislation. Mr. Damon made the point that he was at the mercy of reorganizations of departments and/or reclassifications of jobs. MICHAEL DEAN, testified by teleconference in Anchorage in support of SB 85. He urged the Committee to do whatever was necessary to expedite this legislation. Senator Taylor requested that the Division of Retirement & Benefits provide a fiscal note incorporating changes in the proposed amendment. Amendment #1 was TABLED. The bill was held in Committee. ADJOURNED Senator Torgerson adjourned the meeting at 10:59 am. SFC-00 (1) 1/21/00