Legislature(2017 - 2018)HOUSE FINANCE 519
04/06/2017 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB47 | |
| HB131 | |
| HB127 | |
| HB141 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 47 | TELECONFERENCED | |
| + | HB 131 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 141 | TELECONFERENCED | |
| += | HB 127 | TELECONFERENCED | |
HOUSE BILL NO. 47
"An Act requiring certain municipalities with a
population that decreased by more than 25 percent
between 2000 and 2010 that participate in the defined
benefit retirement plan of the Public Employees'
Retirement System of Alaska to contribute to the
system an amount calculated by applying a rate of 22
percent of the total of all base salaries paid by the
municipality to employees of the municipality who are
active members of the system during a payroll period;
authorizing the administrator of the defined benefit
retirement plan of the Public Employees' Retirement
System of Alaska to reduce the rate of interest
payable by certain municipalities that are delinquent
in transmitting employee and employer contributions to
the retirement plan; and providing for an effective
date."
Co-Chair Seaton invited Co-Chair Foster to join his staff
at the table to present his bill.
1:38:02 PM
PAUL LABOLLE, STAFF, REPRESENTATIVE NEAL FOSTER, read the
sponsor statement:
HB 47 seeks to correct an unintended consequence of
the PERS "salary floor" established in SB 125 of the
25th Legislature.
SB 125 changed the PERS system from a multiple
employer plan to a cost share plan. It transferred the
individual liability of the 160 PERS employers and
consolidated it so that all the employers share in
that liability.
SB 125 also created what is commonly referred to as
the 2008 salary floor. This requires employer's
contribute 22% of annual salaries or 22% of FY08
salaries, whichever is greater. The floor was
instituted to ensure that the system could not be
"gamed" by discouraging employers from replacing PERS
employees with contract hires to reduce their base
contribution to the system.
Some municipalities have found themselves under the
2008 floor through no fault of their own. A large
change in population results in a reduced tax base,
which affects the services a city can provide. As that
financial reality drives a city to downsize, current
law exacerbates this problem by keeping their PERS
contribution at the 2008 level. This bill targets the
communities whose population has dropped by more than
25% since the previous census.
HB 47 will address this issue in two ways:
1. Establish a new floor of FY 2012 for communities
whose population decreased by more than 25% between
2000 and 2010.
2. Allows the PERS administrator to negotiate penalty
interest rates on delinquent payments.
HB 47 does not intend to repeat the "2008 floor"
debate but to correct one of the unintended
consequences caused by the arbitrary line that debate
created.
I urge your support of this legislation.
1:40:22 PM
Representative Wilson asked whether the bill opened the
Public Employees' Retirement System (PERS) and Teachers
Retirement System (TRS) to liability issue. Mr. Labolle
responded that the bill would "slightly add to the unfunded
liability," but eliminated "future exposure" because the
qualification period was during a past census.
Representative Wilson deduced that the municipalities'
contribution would be reduced due to decreased population,
but the state remained liable for the retirees, which
represented the initial increase in liability. Mr. Labolle
responded in the affirmative.
1:41:25 PM
Representative Ortiz asked Mr. Labolle to provide an
example of how the legislation worked. Mr. Labolle used the
example of a fish processing plant that closed in a village
causing some residents to move away. He assumed that the
villages 22 percent contribution rate was $150 thousand,
and the 2008 floor was $100 thousand. After the plant
closure, the villages 22 percent of gross salaries dropped
to $80 thousand, but the village was still statutorily
required to pay the $100 thousand floor. He continued that
if the village continued to pay the gross salaries, but was
unable to pay the floor amount, the remainder of the
difference was considered a delinquent payment subject to a
statutory 12 percent interest rate that accrued each year.
He related that the state and municipality did not have
options to mitigate the debt due to statute. The state was
bound by law to charge the 12 percent assessment and
indebted municipalities could not declare bankruptcy or
dissolve. Representative Ortiz surmised that the bill
"moved the floor to a later date, which would presumably be
a less burdensome floor" when the population decrease was
factored in. Mr. Labolle responded in the affirmative.
Co-Chair Foster pointed out that the situation Mr. Labolle
provided was hypothetical. He indicated the committee would
hear testimony from a real situation in Galena where the
military base closed.
1:44:47 PM
Representative Grenn referred to an email from the Division
of Retirements and Benefits {Jim Puckett, Division Director
(copy on file)] listing the communities that between 2000
and 2010 lost 25 percent of their population as; St.
George, Galena, and Pelican. He asked for confirmation. Mr.
Labolle responded that 5 communities qualified, but only
the three Representative Grenn mentioned were affected. He
noted that Atka was already paying above the floor. In
addition, the community of Anderson had zero active PERS
eligible employees [St. George was also listed.]
Representative Wilson wanted to understand the fiscal note.
She reported that the state was required to pay $129
thousand in the FY 2017 Supplemental Budget bill and an
additional $121 thousand in 2018.
Co-Chair Seaton asked Mr. Worley to come to the table.
1:47:17 PM
KEVIN WORLEY, CHIEF FINANCIAL OFFICER, DIVISION OF
RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION,
explained that the figures were estimates from the actuary
based on the reduced floor that shifted the remaining
liability to the state. Representative Wilson asked whether
the state was required to deposit the stated amounts in the
PERS and TRS funds. Mr. Worley responded that the figures
would be an additional state contribution for PERS only.
Co-Chair Seaton asked whether the fiscal note satisfied the
statutory requirement that an actuarial analysis was
required. Mr. Worley responded in the affirmative.
1:49:19 PM
Co-Chair Seaton OPENED Public Testimony.
1:49:35 PM
JON KORTA, MAYOR, CITY OF GALENA, GALENA (via
teleconference), spoke in favor of HB 47. He read from a
prepared statement:
My name is Jon Korta. I am the mayor of Galena,
Alaska. I would like to thank the committee for taking
time today so that I may explain the importance of
HB47 for communities like Galena that have seen
significant population decreases in the last decade.
As you may know, the Galena Forward Operating Location
was closed by the United States Air Force. As part of
the BRAC process, the Galena FOL closure was effective
October 1, 2010, but had been in process for four
years. The Air Force base was the main source of
employment for Galena residents. Not surprisingly, the
base closure resulted in a reduction of the
population. In 2000, Galena had 675 residents. In
2010, 470 residents, representing a 30% decline.
Galena was again struck by hardship in spring of 2013
when ice dammed the Yukon River and inundated the
City, leading to a disaster declaration.
The 2008 "Floor" established by the current law exists
to prevent a municipality from gaming the PERS system
by contracting out work previously performed by
municipal employees in order to avoid making ongoing
contributions to PERS. The current minimum PERS
contribution is based on the level of salaries that
existed in 2008. This purpose does not account for
Galena's situation. It was not intended, nor does it
contemplate, municipalities with sharply declining
populations. HB 47 does not change the PERS policy,
but rather recognizes nuance.
The amendment affects only communities that suffered a
minimum 25% decline in population between 2000 and
2010, like Galena. To put that in perspective, the 25%
threshold would represent the loss of 75,000 people
from Anchorage or 8,000 people from Juneau. What would
happen to Fairbanks if the Borough's population
declined by 30,000, while at the same time seeing the
closure of Eielson and Fort Wainwright? The demand for
municipal administrative and public services would
decline sharply; so would the municipality's ability
to provide these services having lost the region's
economic driver.
HB 47, which moves the floor year from 2008 to 2012
for the communities that experienced these huge
losses, does not provide a "loophole" allowing Galena
or any other community with a similar population loss
between 2000 and 2010 to "game" the system now or in
the future. The 2008 floor for these communities is
replaced with a 2012 floor. Galena's budgeted payroll
for FY 2015 is above the 2012 amount for 17 employees.
Galena's circumstances are not a result of any choice
the city made. The base closure and concomitant loss
of close to 1/3 of the city's population was entirely
involuntary. The relationship between a declining
population and declining payroll is clear: fewer
residents = fewer public employee = lower public
payroll. Based on the 2008 floor, Galena is required
to pay an amount owed by a city substantially larger
than Galena. Galena's required PERS contribution
approaches half of the City's entire payroll.
Galena's FY 2008 salary total was $1,513,365.19 for 36
employees. Therefore, Galena's annual minimum PERS
contribution is $332,940. In FY 2012 Galena's payroll
was $765,776 for 17 employees. That is the year this
amendment would move the floor to for cities that saw
a 25% decrease in population between 2000 and 2010.
Under the 2008 floor, Galena's annual minimum PERS
contribution is nearly half of the City's entire
payroll costs.
For Galena, the difference in PERS contributions
between the 2008 "floor" and FY 2012 actual payroll is
$164,000. This difference will continue going forward
creating an ever-increasing obligation. By statute,
any amount unpaid accrues interest at 12%. This ever-
increasing obligation adds to an already stressed
situation. The City's financial situation was so
severe in FY 2011 that it required a low interest loan
through the Alaska Municipal Bond Bank to deal with a
severe cash flow crisis that was preventing them from
being able to secure fuel for heat and electricity.
Simply put, if Galena cannot pay its bills, the lights
go out in Galena.
The 2008 Floor is, overall, a sound piece of
legislation, furthering sound policy, but it does not
account for all situations. It does not account for
cities that have suffered massive population
contractions. This amendment furthers the underlying
policy goals of the regulatory structure: It helps
ensure that municipalities are able to continue
contributing to PERS, while recognizing that a city
cannot, and should not, have to make the contribution
of a city that has a significantly larger population.
Recognizing that Galena is not the same city it was
before the base closed and 30% of its population moved
away is simply good policy, policy that helps ensure
that Galena continues to contribute to PERS and that
the lights stay on.
Recognizing the reality of sharply declining
populations is a worthy amendment and is just plain
fair.
Thank you for your time this morning. I would be happy
to answer any questions you may have.
1:56:13 PM
SHANDA HUNTINGTON, CITY MANAGER/CLERK - CITY OF GALENA,
GALENA (via teleconference), read a prepared statement:
My name Shanda Huntington and I am the city manager
for Galena, Alaska. Before serving as the city
manager, I served as the city clerk for 6 years. I was
also born in Galena, grew up there, and raised my
children in Galena. I would like to follow up on Mayor
Korta's testimony with information relating to
Galena's population decline, the base closure, and the
effects on city payroll and finances.
As Mayor Korta said, the air force base officially
closed in 2010, following a multi-year drawdown. In
1990, before base realignment, Galena's population was
847. Galena has always been a small city and the base
was the driver of economic activity. According to the
2000 census, the number of residents, which does not
include all of the Air Force personnel, was 675. That
number had dropped to 470 with the 2010 census. 205
people may not sound like a lot, but it represents a
30% decrease in the city's resident population between
the two censuses. 30% of residents moved away, but the
decline in the city's economic activity was much
greater. Without the base, the decline in demand for
city services was disproportionate to the population
decrease.
For FY 2008, the current floor year, Galena's salary
total was $1,513,365.19 for 36 employees. Therefore,
Galena's annual minimum PERS contribution is $332,940.
In FY 2012, the amended floor year, Galena's payroll
was $765,776 for 17 employees. Between FY 2008 and FY
2012, Galena's payroll was cut in half, reflecting the
decrease in population and in economic activity.
Galena's current annual minimum PERS contribution of
$332,940 is nearly half of the City's FY 2012 total
payroll costs. Allowing a floor year of 2012 for
cities that experienced a drastic decrease in
population changes Galena's annual minimum
contribution to $168,940.
For Galena, the difference in PERS contributions
between the 2008 floor and FY 2012 actual payroll is
$164,000. This difference will continue going forward
creating an ever-increasing obligation. By statute,
any amount unpaid accrues compounded interest at 12%.
This ever-increasing obligation adds to an already
stressed situation. The City's financial situation was
so severe in FY 2011 that it required a low interest
loan through the Alaska Municipal Bond Bank to deal
with a severe cash flow crisis that was preventing us
from being able to secure fuel for heat and
electricity. Simply put, if Galena can't pay its
bills, the lights go out in Galena.
Reasonably adjusting the floor year for severely
impacted cities does not mean that the cities will pay
the minimum amount only. Modifying the floor year
changes Galena's minimum annual contribution from
$332,940 to $168,940; the actual contribution may be
higher. For FY 2013, Galena would in fact pay more
than that amended minimum. For FY 2013, Galena added
one employee, for a total payroll of $895,784.53. For
FY 2013, Galena's contribution would have been above
the 2012 floor by approximately $30,000.
HB 47 simply recognizes that reality of drastic
population decreases experienced by some Alaska
cities, using a clearly defined metric: a 25% decrease
in population according the 2000 and 2010 censuses.
The base closure has been very difficult for Galena.
As previously noted, Galena required a low interest
loan through the Alaska Municipal Bond Bank to secure
fuel for heat and electricity in FY 2011. In the last
several years, Galena's finances have stabilized and
there are even indicators of recovery after the
catastrophic decline. We cannot say what will happen
to Galena's population long-term, but we believe that
we have turned a corner in terms of population and
finances.
The City of Galena is adjusting to a new reality
following the base closure and loss of 30% of the
population. This legislation is one part of that
adjustment. I became city manager during a difficult
period for the City. Our finances have stabilized
somewhat over the last several years. Requiring the
City of Galena to pay to PERS a contribution owed by a
much larger city weakens Galena, and threatens its
ability to provide any contribution to PERS. We are
cautiously optimistic that the City will become
stronger and even grow over time. If and when Galena
becomes the city it was in 2008, the city will be
required to make a PERS contribution commensurate with
that size and payroll, and will do so gladly, but it's
not that city right now and the oversized PERS
contribution inhibits it from becoming so.
Recognizing the reality of drastically declining
populations is a matter of simple fairness. The
amendment recognizes this and ultimately promotes the
goals of PERS: ensuring that Alaska municipalities
continue to contribute their fair share to the system.
I would like to thank the committee for taking time
today so that I may explain the importance of this
amendment for communities like Galena that have seen
significant population decreases in the last decade.
2:02:58 PM
KATHIE WASSERMAN, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL
LEAGUE, ANCHORAGE, spoke in support of HB 47. She reported
that the league had been working on the issue for several
years. She was the previous mayor of Pelican, Alaska. She
relayed an example when the local cold storage facility was
purchased by Kake Tribal, subsequently went bankrupt
resulting in the city's 2008 floor dramatically decreasing
due to population loss. She emphasized that the 12 percent
assessment was incredibly high. She voiced that in some
instances municipalities fall into a situation where they
could never get out of the debt. The league offered its
full support of HB 47.
2:06:10 PM
Representative Guttenberg wondered about the ability to
collect what a city owed for a liability. He related a
prior conversation with Michael Lamb, [Interim Executive
Director and Chief Financial Officer, Alaska Energy
Authority, Department of Commerce, Community and Economic
Development] who was "instrumental" in a prior settlement
agreement. He relayed that Mr. Lamb stated a community
would never be able to pay off its indebtedness to PERS. He
stated that communities were paying through a formula, but
it was unknown whether the payments were underpayments or
overpayments. He asked whether the statement was accurate.
Ms. Wasserman responded in the affirmative. She spoke of a
historical arbitrary percentage that had been decided
between the league and the Senate Finance Committee. She
acknowledged that some communities might be overpaying, and
some were likely underpaying. Representative Guttenberg
commented that the purpose of the bill was to ensure that
payments could continue and were made more affordable. Ms.
Wasserman explained that the bill did not provide relief
from the liability, but simply moved the floor and adjusted
the interest. The municipality still owed the principal of
their past debt.
2:09:04 PM
Representative Pruitt asked whether Ms. Wasserman expected
other cities coming to the legislature requesting
adjustments in the future. Ms. Wasserman replied in the
negative. She explained that wages continued to increase,
and the floor issue will likely resolve itself in the
future. She deemed that it would be very difficult to
revert further than 2008 due to inflation. Representative
Pruitt commented that the municipalities were asking the
state to take on more of its burden. He wondered if the
rest of the league's membership was supportive of the bill.
Ms. Wasserman thought the other member communities were
supportive. However, every municipality was waiting for the
state to address the "termination studies and the PERS
floor," which were the larger issues. She claimed that the
legislation was only a temporary fix for communities that
were in a desperate situation. She was still working on
additional legislation to provide a more permanent fix for
the larger issues.
2:12:51 PM
Co-Chair Seaton CLOSED Public Testimony.
Co-Chair Foster indicated amendments were due on the
following Monday by 5:00 PM.
HB 47 was HEARD and HELD in committee for further
consideration.