2018-11-07                     Senate Journal                      Page 3241
SB 97                                                                                                                         
Message dated September 28 was received stating:                                                                                
                                                                                                                                
Dear President Kelly:                                                                                                           
                                                                                                                                
Under the authority of article II, section 17, of the Alaska Constitution,                                                      
I have let the following bill become law without signature:                                                                     
                                                                                                                                
                  HOUSE CS FOR SENATE BILL NO. 97(FIN) am H                                                                    
         "An Act relating to pension obligation bonds."                                                                         
                                                                                                                                
                            Chapter 109, SLA 2018                                                                              
                         [Effective Date: 12/26/18]                                                                            
                                                                                                                                
Although I understand the necessary role of the Legislature in setting                                                          
limits on the issuance of pension bonds, I am concerned that the                                                                
approach taken in HCS SB 97(FIN) am H adds unnecessary steps to                                                                 
the bond issuance process and unnecessarily restricts the pension                                                               
obligation bond limit. Neither of these legislative changes are needed,                                                         
and they may hinder responsible and timely pension obligation bond                                                              
issuance in the future.                                                                                                         
                                                                                                                                
Responsible management of the State’s unfunded pension obligations                                                              
is necessary to assure the State’s fiscal future and to meet our                                                                
obligations to system beneficiaries. In 2008, the Legislature, through                                                          
enactment of statutes allowing the issuance of pension obligation                                                               
bonds, recognized that pension obligation bonds were one means to                                                               
address and pay down unfunded pension obligations. Accordingly, the                                                             
Legislature set up a rigorous structure to assure careful consideration                                                         
of pension obligation bonds. However, with the changes in this bill, I                                                          
am concerned that the process will be unduly hampered at no benefit                                                             
to the state.                                                                                                                   
                                                                                                                                
First, this bill will require the Alaska Housing Finance Corporation                                                            
(through a subsidiary), the Alaska Pension Obligation Bond                                                                      
Corporation, the State bond committee, and the Alaska Municipal                                                                 
Bond Bank Authority, to submit a pension bond proposal to the                                                                   
Legislative Budget and Audit Committee for a 45-day period of                                                                   
review.                                                                                                                         
                                                                                                                                

2018-11-07                     Senate Journal                      Page 3242
I understand the Legislature may wish to have some formalized                                                                   
approval process for bond issuance. However, I am concerned that a                                                              
45-day review period is cumbersome and unlikely to be useful. Bonds                                                             
can only be issued after rigorous financial vetting consistent with                                                             
prudent financial management and stringent statutory obligations. The                                                           
review period in the bill for the Legislative Budget and Audit                                                                  
Committee is unlikely to add anything to the considerations the State                                                           
debt managers have not already considered. Additionally, the                                                                    
committee is given no standards under which to review a pension bond                                                            
obligation offering. While it may be advisable to have some type of                                                             
legislative input regarding a proposed bond offering, I hope to work                                                            
with the Legislature to streamline the process, as the approach in this                                                         
bill fails to strike the right balance of legislative oversight and                                                             
recognition of bond market complexities.                                                                                        
                                                                                                                                
Second, the bill would reduce the pension obligation bond limit from                                                            
the current $5,000,000,000 to $1,500,000,000 or a funding ratio of                                                              
actuarial assets to accrued liability greater than 85 percent, whichever                                                        
is less. This limitation, although likely spurred by good intentions and                                                        
a goal of fiscal responsibility, presents two concerns. First, the limit of                                                     
$1,500,000,000 may be unreasonably low, and second, the limitation                                                              
based on actuarial assets to accrued liability could raise questions of                                                         
interpretation and implementation.                                                                                              
                                                                                                                                
I believe there are better ways to develop an effective and helpful                                                             
legislative review process. However, I also understand the                                                                      
Legislature’s desire, and proper role, in determining how we best                                                               
address our unfunded pension liability. For these reasons, I have not                                                           
signed HCS SB 97(FIN) am H, and have allowed it to become law                                                                   
without my signature.                                                                                                           
                                                                                                                                
Sincerely,                                                                                                                      
/s/                                                                                                                             
Bill Walker                                                                                                                     
Governor