ALASKA STATE LEGISLATURE  SENATE STATE AFFAIRS STANDING COMMITTEE  January 26, 2012 9:04 a.m. MEMBERS PRESENT Senator Bill Wielechowski, Chair Senator Joe Paskvan, Vice Chair Senator Kevin Meyer Senator Cathy Giessel MEMBERS ABSENT  Senator Albert Kookesh COMMITTEE CALENDAR  SENATE BILL NO. 150 "An Act relating to applying military education, training, and service credit to occupational licensing and certain postsecondary education and employment training requirements; and providing for a temporary occupational license for qualified military service members." - MOVED CSSB 150(STA) OUT OF COMMITTEE SENATE BILL NO. 121 "An Act relating to the public employees' retirement system and the teachers' retirement system; and providing for an effective date." - HEARD & HELD SENATE BILL NO. 136 "An Act providing a tax credit for employing an Alaska veteran that may be taken against a liability for the tax on corporation income; and providing for an effective date." - HEARD & HELD PREVIOUS COMMITTEE ACTION  BILL: SB 150 SHORT TITLE: MILITARY TRAINING CREDIT SPONSOR(s): SENATOR(s) WIELECHOWSKI 01/17/12 (S) PREFILE RELEASED 1/13/12 01/17/12 (S) READ THE FIRST TIME - REFERRALS 01/17/12 (S) STA, L&C 01/24/12 (S) STA AT 9:00 AM BUTROVICH 205 01/24/12 (S) Heard & Held 01/24/12 (S) MINUTE(STA) 01/26/12 (S) STA AT 9:00 AM BUTROVICH 205 BILL: SB 121 SHORT TITLE: TEACHERS & PUB EMPLOYEE RETIREMENT PLANS SPONSOR(s): SENATOR(s) EGAN 04/07/11 (S) READ THE FIRST TIME - REFERRALS 04/07/11 (S) STA, FIN 04/14/11 (S) STA AT 9:00 AM BUTROVICH 205 04/14/11 (S) Heard & Held 04/14/11 (S) MINUTE(STA) 09/15/11 (S) STA AT 9:00 AM Anch LIO Rm 220 09/15/11 (S) Heard & Held 09/15/11 (S) MINUTE(STA) 10/13/11 (S) STA AT 12:00 AM Fairbanks 10/13/11 (S) Heard & Held 10/13/11 (S) MINUTE(STA) 01/26/12 (S) STA AT 9:00 AM BUTROVICH 205 BILL: SB 136 SHORT TITLE: INCOME TAX CREDIT FOR EMPLOYING A VETERAN SPONSOR(s): SENATOR(s) WIELECHOWSKI 01/17/12 (S) PREFILE RELEASED 1/6/12 01/17/12 (S) READ THE FIRST TIME - REFERRALS 01/17/12 (S) STA, FIN 01/24/12 (S) STA AT 9:00 AM BUTROVICH 205 01/24/12 (S) Scheduled But Not Heard 01/26/12 (S) STA AT 9:00 AM BUTROVICH 205 WITNESS REGISTER KENDRA KLOSTER, Staff Senator Bill Wielechowski Alaska State Legislature Juneau, Alaska POSITION STATEMENT: Explained changes to SB 150 and testified on SB 136 on behalf of the sponsor. DON HABEGER, Director Division of Corporations, Business, and Professional Licensing Department of Commerce, Community and Economic Development (DCCED) Juneau, Alaska POSITION STATEMENT: Testified on SB 150 SENATOR DENNIS EGAN Alaska State Legislature Juneau, Alaska POSITION STATEMENT: Sponsor of SB 121. JESSE KIEHL, Staff Senator Dennis Egan Alaska State Legislature Juneau, Alaska POSITION STATEMENT: Explained the changes in the new CS for SB 121 on behalf of the sponsor. MIKE BARNHILL, Deputy Commissioner Department of Administration Alaska State Legislature Juneau, Alaska POSITION STATEMENT: Described the changes in the fiscal note for SB 150. ALICIA EGAN, Legislative Liaison Department of Revenue Anchorage, Alaska POSITION STATEMENT: Answered questions about SB 150. ANGELA RODELL, Deputy Commissioner Department of Revenue Alaska State Legislature Juneau, Alaska POSITION STATEMENT: Explained the fiscal note for SB 150. WILLIAM (FLICK) FORNIA, Consulting Actuary Alaska Public Pension Coalition Centennial, Colorado POSITION STATEMENT: Discussed the costs of SB 121. VINCE BELTRAMI, President Alaska AFL-CIO Anchorage, Alaska POSITION STATEMENT: Testified in support of SB 121. JOHN ALCANTRA, NEA Alaska Anchorage, Alaska POSITION STATEMENT: Spoke in favor of SB 121. TED MONINSKI Retired Public Employees of Alaska Anchorage, Alaska POSITION STATEMENT: Testified in support of SB 121. VALERIE KENNY, President Alaska State Employees Association (ASEA), Local 52 Anchorage, Alaska POSITION STATEMENT: Testified in favor of SB 121. LADAWN DRUCE, President Kenai Peninsula Education Association Soldotna, Alaska POSITION STATEMENT: Testified in favor of SB 121. GARY MILLER, Southeast Chair Retired Employees of Alaska Juneau, Alaska POSITION STATEMENT: Testified in support of SB 121. JAKE METCALF, Executive Director Alaska Public Employees Association (APEA) 103 Anchorage, Alaska POSITION STATEMENT: Testified in support of SB 121. BARBARA HUFF-TUCKNESS, Director of Legislative and Governmental Affairs Teamsters Local 109 Anchorage, Alaska POSITION STATEMENT: Urged support of SB 121. RIC DAVIDGE, President Vietnam Veterans of America, Chapter 904 Anchorage, Alaska POSITION STATEMENT: Testified in support of SB 136. JOHANNA BALES, Deputy Director Tax Division Department of Revenue Anchorage, Alaska POSITION STATEMENT: Answered questions about SB 136. ACTION NARRATIVE 9:04:49 AM CHAIR BILL WIELECHOWSKI called the Senate State Affairs Standing Committee meeting to order at 9:04 a.m. Present at the call to order were Senators Giessel, Paskvan, and Chair Wielechowski. SB 150-MILITARY TRAINING CREDIT  9:05:54 AM CHAIR WIELECHOWSKI announced that the first order of business would be SB 150. At the previous meeting the University of Alaska testified about progress in providing retired military service members with credit for military training and work experience. Diane Barrens of the Alaska Commission of Postsecondary Education, Department of Education, had no problems with the bill. Don Habeger and Sarah Chambers from the Division of Corporations, Business, and Professional Licensing, Department of Commerce and Economic Development (DCCED), raised questions about some of the wording in the bill. As a result of those discussions, a new committee substitute (CS), version X, is before the committee. 9:06:38 AM SENATOR PASKVAN moved to adopt CSSB 150, labeled 27-LS117\X, as the working document before the committee. SENATOR WIELECHOWSKI objected for discussion purposes. KENDRA KLOSTER, staff to Senator Bill Wielechowski, sponsor, explained that changes to version X were made in conjunction with DCCED. The first change is on page 2, line 16; the word "temporary" was added before "license" to clarify that section (c) was referring that the boards may issue a temporary license extension of 180 days. She noted several changes on page 5. On line 15, Section 5 is added to include transitional language allowing DCCED and applicable boards to immediately begin implementing regulations to accept military education, training, and service. On line 22, Section 6 adds an effective date of December 31, 2013, which will allow the department and boards enough time to adopt regulations for accepting equivalent military education, training, and service. On line 23, Section 7 is added to allow section 5 to take effect immediately. 9:08:03 AM SENATOR WIELECHOWSKI stated that he and Legislative Legal Affairs intend that Section 1, part B, of SB 150 directs the issuance of temporary licenses for only those boards that are currently authorized to issue a temporary license and any that might be authorized in the future. The bill does not direct or require boards or DCCED to issue temporary licenses. The issuance of temporary licenses remains at the discretion of the department and boards. DON HABEGER, Division of Corporations, Business, and Professional Licensing, Department of Commerce, Community and Economic Development (DCCED) voiced appreciation for the committee's work on SB 150. He said he appreciates that Sections 5 - 7 give the department and boards time to implement regulations. Some boards meet only twice a year, so this change gives them ample time. He said he also appreciates Chair Wielechowski's clarification of intent. SENATOR WIELECHOWSKI said he understood that with the new language there is a zero fiscal note forthcoming. Mr. Habeger said there was. 9:11:16 AM SENATOR WIELECHOWSKI noted that Senator Giessel suggested a change; on page 2, line 12, add the word "degree," before the word "diploma". He requested a comment on the proposed change. MR. HABEGER said that was acceptable. SENATOR WIELECHOWSKI withdrew his objection to adopting version X. CHAIR WIELECHOWSKI announced that without objection, version X was adopted. SENATOR WIELECHOWSKI moved to add "degree," on page 2, line 12, after "was awarded a". He announced that without objection, the motion was adopted. 9:13:00 AM SENATOR WIELECHOWSKI requested a motion to move version X out of committee, as amended, with individual recommendations and attached two zero fiscal notes from the Department of Labor and Workforce Development and the University of Alaska, and with a forthcoming fiscal note from the Department of Commerce, Community, and Economic Development. SENATOR PASKVAN moved [to report the CS for SB 150, version X, as amended, from committee with individual recommendations and attached two zero fiscal notes.] There being no objection, the motion carried. SB 121-TEACHERS & PUB EMPLOYEE RETIREMENT PLANS  SENATOR WIELECHOWSKI announced that the next bill before the committee was SB 121, a bill that would give public employees in Alaska a choice between participating in a defined benefit (DB) or defined contribution (DC) retirement system. He noted it was the third hearing on the bill. The bill has evolved considerably since the sponsor sought to design a system that would cost the State of Alaska, municipalities, and school districts less than the current Tier III Defined Benefit (DB) system costs. SENATOR PASKVAN moved to adopt CSSB 121, labeled 27-LS0281\R, as the working document before the committee. SENATOR WIELECHOWSKI objected in order to hear comments from the sponsor. 9:14:30 AM SENATOR DENNIS EGAN, sponsor of SB 121, voiced appreciation for the work the committee and his staff did on the bill. He read from the sponsor statement: SB 121 lets teachers, troopers, firefighters and other public employees choose one of two state retirement systems: an individual defined contribution retirement account, or earning a defined benefit pension. A defined benefit pension takes time to earn, but rewards a record of public service by paying a guaranteed monthly benefit and, for long-term employees, health insurance. An individual defined contribution account is portable from one employer to another and flexible in how it can be used, but makes no guarantees. SB 121 will let newly hired public servants in Alaska choose the one that fits best. 9:16:21 AM JESSE KIEHL, staff to Senator Egan, explained the changes in the new CS for SB 121, version R. The substantive changes in version R were made in order to address the fiscal note from the Department of Administration. The biggest change is in the provisions that cover those employees currently in the DC plan who choose to convert into the new tiers of DB that the bill creates. As shown in the previous fiscal note, the individual accounts do not have enough money in them to prefund the benefits for the actual time the employees have worked to date. The amount in the previous fiscal note was around $120 million. The new CS should erase that number. Those employees who choose to convert to the new DB plan will have their accounts deposited into one of the DB pension trusts. The actuary will calculate the time value of that money. When that amount is less than that employees actual time worked, the employee will have a choice to create an indebtedness and "buy the difference" up to their actual service time, or they may choose to start with however much time the DC account buys and earn going forward. MR. KIEHL explained that the second substantive change in version R addresses the difficulty of prefunding the retiree health care benefit. It mirrors, in part, the structure in the DC plan for retirees who do qualify for the retirement system to pay a portion of their retiree medical benefit. An employee must work ten years before the system will pay any of the retiree medical premium. If an employee works 10 years they would have to be Medicare eligible before the system will pay, except for teachers, police officers, and firefighters who must work a total of 25 years to qualify for retiree medical payments. Other employees must work 30 years. 9:20:04 AM MR. KIEHL pointed out that the new schedule matches what is set up in current DC statutes. He gave several examples of how premiums are paid. MR. KIEHL said that version R also makes several technical and mechanical changes, which are described in a handout. He spoke of one additional change that was omitted. The earlier version of the bill was not clear in how it treated public organizations that participate in PERS, such as housing authorities and development organizations. Version R clarifies that they are also subject to all sections of the bill. MR. KIEHL noted that the effective date had been changed to July 1, 2013. SENATOR WIELECHOWSKI recalled work done in a previous meeting in Fairbanks by the administration's actuary services to help assess the fiscal implications of proposed changes to the bill. He said the committee and sponsor greatly appreciate that offer. He added that he was expecting new fiscal projections now that version R was adopted. 9:22:28 AM MIKE BARNHILL, Deputy Commissioner, Department of Administration, explained that the department has received version R and it has been transmitted to the actuary. He said he believed the department was very close to having a new fiscal note, particularly with respect to the elimination of the "general fund subsidy of the one-for-one service credit", and creating indebtedness on the employee as opposed to being on the general fund. That part of the fiscal note will be easily eliminated; however, there are more complicated issues that still need to be reviewed. In particular, in PERS the bill increases the assumed employee contribution rate. Currently, employees pay 6.75 percent in the DB plan; 7.5 percent for police and firefighters. In version R, that amount is increased to 8 percent, which is a positive fiscal impact and reduces cost to employers. Currently, in the TRS DB plan, the employee contribution rate is 8.65 percent and it is reduced in version R to 8 percent, a negative impact which will cost employers more. He said he understood that the sponsor's intent is to create a neutral fiscal impact. He said he thought the actuaries were on the right track. He pointed out that there are still some technical problems with the bill. SENATOR WIELECHOWSKI inquired when the new fiscal note would be ready. MR. BARNHILL thought it would be soon. SENATOR WIELECHOWSKI asked if the technical issues will be addressed with the bill sponsor. MR. BARNHILL replied that they would. 9:25:47 AM ALICIA EGAN, Legislative Liaison, Department of Revenue, said she was available to answer questions about SB 150. Chair Wielechowski requested an explanation of the new fiscal note. MS. EGAN deferred to Ms. Rodell to answer. ANGELA RODELL, Deputy Commissioner, Department of Revenue, explained that the fiscal note reflects management fees required to be paid in the Defined Benefit (DB) program. The source of those fees is different than under the Defined Contribution (DC) program. If there is significant movement of members from DC to DB, there would be higher management fees. SENATOR WIELECHOWSKI summarized that if more people move to DC from DB, there would be a need for more management fees. MS. RODELL said that was correct. She added that DB management fees are incorporated into the amounts on deposit, whereas, the DC fees come out of the employee. SENATOR PASKVAN asked what calculation was used to arrive at that amount. MS. RODELL referred Senator Paskvan to page 2 of the fiscal note. The Department of Revenue is assuming that, based on the Department of Administration's fiscal note, 60 percent of the current DC plan will convert to the DB plan, 80 percent of future members will elect to be in the DB plan, and a management load of 35 basis points will transfer to the state. SENATOR PASKVAN asked for the current load of the DC plan. MS. RODELL offered to supply that information. SENATOR WIELECHOWSKI agreed that it was a good question and requested further information. 9:30:07 AM SENATOR PASKVAN shared his understanding that the greater the sum of money, the lower load on the fund itself. He wanted to understand the department's parameters. SENATOR WIELECHOWSKI asked for the timeline on obtaining the information. MS. RODELL said she could provide that information later today. SENATOR WIELECHOWSKI opened public testimony. WILLIAM (FLICK) FORNIA, Consulting Actuary, Alaska Public Pension Coalition, Centennial, Colorado, discussed the costs of SB 121. He said he has been working together with the sponsor to arrive at a close to cost neutral amount. He was optimistic that it would result in savings to the state. SENATOR WIELECHOWSKI described the new fiscal note from the Department of Revenue: it is $593,000 the first year, $690,000 the second year, and over $1 million by 2017. He requested Mr. Fornia's opinion of the fiscal note. MR. FORNIA said he now understands the management fee impact better. He said he would review all numbers in more detail. 9:34:14 AM VINCE WELTRAMI, President, Alaska AFL-CIO, testified in support of SB 121. He related that half of the 60,000 members in Alaska AFL-CIO are public employees in PERS. He maintained that the bill makes Alaska competitive when it comes to recruitment and retention. It also is about restoring dignity and expressing appreciation of the value of Alaska's employees and doing that in a fiscally responsible way. Many of the current employees do not have the option of a defined benefit, nor the right to a pension from Social Security. The bill provides employees with a dignified retirement. He recognized that having an option of a DB plan or a DC plan has benefits. The bill strikes a balance. He encouraged passage of SB 121. 9:37:16 AM JOHN ALCANTRA, NEA Alaska, spoke in favor of SB 121 on behalf of the 13,000 members he represents. This legislation has been NEA's number one priority for the last five years. He thanked the sponsors and co-signers for working on the legislation. He gave an example of a math teacher who left Alaska because of the current DC retirement plan. He shared statistics of NEA employees and said returning to retirement security is their priority issue. He spoke highly of the DB plan or a choice between the two plans. 9:39:37 AM TED MONINSKI, Retired Public Employees of Alaska, testified in support of SB 121 on behalf of the 2,000 members he represents. He agreed with the previous testifiers. He spoke of the value of SB 121 to Alaska. Having a monthly pension enhanced by a cost- of-living allowance helps prevent retired teachers from moving out of state and provides a direct economic impact to the state. Two-thirds of retired employees now remain in Alaska after retirement which provides a direct economic impact and helps stabilize the economy. MR. MONINSKI described how social security benefits do not apply to Alaskan employees. In the absence of both social security and a reliable state pension, public employees who were hired after 2006 must rely on savings, including their DC plan. National studies show that more than two-thirds of DC plan participants cash out their assets when terminating employment rather than rolling them over into another retirement plan. There are many negative consequences from this. He spoke of the indirect benefits retirees provide for the state. He urged favorable consideration of SB 121. CHAIR WIELECHOWSKI announced that Senator Meyer had joined the meeting. 9:43:37 AM VALERIE KENNY, President, Alaska State Employees Association (ASEA), Local 52, testified in favor of SB 121 on behalf of over 8,000 public employees. She noted that passage of SB 121 was ASEA's primary goal. She described the benefits of Tier V, which are less than in Tier III. In Tier V, employers and employees will share risks and benefits. It is ASEA's goal to reinstate the DB option without additional cost to employers and provide a choice to members. She maintained that SB 121 is not a repeal of SB 141, which will continue as an option for employees who wish to remain on a DC plan. LADAWN DRUCE, President Kenai Peninsula Education Association, testified in favor of SB 121 on behalf of 650 teachers and staff. She pointed out that the Kenai area has no problem recruiting teachers, but does have difficulty retaining them. She shared that about a third of the teachers in the Kenai area are in the Tier III DC plan. The DC system, when combined with no Social Security, puts Alaska teachers last of all states for retirement benefits. She urged passage of the bill. 9:49:44 AM GARY MILLER, Southeast Chair, Retired Employees of Alaska, testified in support of SB 121. He shared his personal working history in Alaska and emphasized that neither he nor his wife would work today in Alaska under the DC plan because it does not offer the security of retirement. He requested passage of the bill so that his grandchildren would have an option for a secure retirement. 9:51:35 AM JAKE METCALF, Executive Director, Alaska Public Employees Association (APEA) 103, testified in support of SB 121 on behalf of the law enforcement officers, court service officers, airport police, firefighters, and city police departments throughout the state. He pointed out that retention of employees is a major issue in APEA. His said APEA members make a career out of their jobs and would like to remain in Alaska. They receive a large amount of training at a cost to Alaska and many of those employees are taking their training to another state. He urged passage of the bill. 9:54:27 AM BARBARA HUFF-TUCKNESS, Director of Legislative and Governmental Affairs, Teamsters Local 109, urged support of SB 121 on behalf of 800 public employee union members. She said changes made to SB 121 are pro-active and will encourage employees to remain in the state. SENATOR WIELECHOWSKI closed public testimony. SENATOR WIELECHOWSKI stated that SB 121 would be set aside. He stressed the goal of getting the fiscal note as revenue-neutral as possible. SB 136-INCOME TAX CREDIT FOR EMPLOYING A VETERAN  9:57:12 AM SENATOR WIELECHOWSKI announced the consideration of SB 136, which would provide a tax credit to Alaskan employers who hire a veteran. KENDRA KLOSTER, staff to Senator Bill Wielechowski, explained SB 136 is an income tax credit for employing a veteran. She related that veterans are some of the most highly trained, highly educated, and highly skilled workers. In June 2011, according to the U.S. Bureau of Labor Statistics, one million U.S. veterans were unemployed and the jobless rate for post-911 veterans was 13.3 percent. The picture was even worse for young, male veterans who saw an unemployment rate of 21.9 percent. The intention of the bill is a win-win situation; for businesses to receive a $2,000 tax credit for hiring veterans and for veterans to get employment. MS. KLOSTER explained that the $2,000 tax credit is for each veteran hired who works at least 1,560 hours within a 12-month period, or approximately 30 hours a week. The tax credit can be applied in the first year after 12-months of employment. SENATOR WIELECHOWSKI moved to adopt Amendment 1: 27-LS0983\I.1 Bullock AMENDMENT 1  OFFERED IN THE SENATE BY SENATOR WIELECHOWSKI TO: SB 136 Page 1, line 1: Delete "an Alaska" Insert "a" Page 1, lines 6 - 7: Delete "an Alaska veteran and employs the veteran" Insert "a veteran and employs the veteran in the state" Page 1, line 8: Delete "Alaska" Page 2, line 4: Delete "Alaska" Page 2, line 6: Delete "an Alaska veteran, and the Alaska" Insert "a veteran, and the veteran" Page 2, line 9: Delete "an Alaska" Insert "a" Page 2, line 10: Delete ""Alaska veteran" has the meaning given in AS 36.30.175" Insert ""veteran" means an individual who served in the (1) armed forces of the United States, including a reserve unit of the United States armed forces; or (2) Alaska Territorial Guard, the Alaska Army National Guard, the Alaska Air National Guard, or the Alaska Naval Militia" CHAIR WIELECHOWSKI objected for discussion purposes. MS. KLOSTER explained that Amendment 1 came about through conversations with the Tax Division in the Department of Revenue regarding the wording, "an Alaska veteran". The Department of Law also raised questions about that wording. A change was made to say "a veteran" instead. SENATOR WIELECHOWSKI withdrew his objection. Seeing no objection, Amendment 1 was adopted. 10:00:42 AM RIC DAVIDGE, President, Chapter 904, Vietnam Veterans of America, testified in support of SB 136. He reported on the recent success of the Vietnam Veterans of America in getting a veterans' jobs bill passed by Congress. The idea is to provide businesses and corporations with a tax credit for hiring veterans. The federal bill sets up a start point for a $2,400 tax credit. Currently, 48 states are considering the program or are doing it. He recommended a matching tax credit in Alaska of $2,600, which would provide a corporate tax credit totaling $5,000. He described the advantages of providing a tax credit to businesses. He said that Alaska has the highest per capita number of veterans in the U.S. with about 1,300-1,400 newly retired military annually. He urged the committee to pass the legislation with an increase to $2,600. 10:03:31 AM JOHANNA BALES, Deputy Director, Tax Division, Department of Revenue, offered to answer questions about SB 136. SENATOR WIELECHOWSKI asked if the fiscal note was an indeterminate or zero note. MS. BALES explained that it was indeterminate for the effect on income tax revenues. As the bill is written, for every $2,000 in credit, corporate income tax would decrease by that amount. The department is unable to determine how many veterans would be hired and how many corporations would take advantage of the credit. She noted that the Department of Revenue would be able to absorb any costs of this program with existing resources. SENATOR WIELECHOWSKI closed public testimony. SENATOR WIELECHOWSKI set SB 136 aside. SENATOR WIELECHOWSKI commented that veteran tax credit programs in other states are done in various ways. He welcomed suggestions. 10:05:54 AM There being no further business to come before the committee, Chair Wielechowski adjourned the Senate State Affairs Standing Committee at 10:05 a.m.