Legislature(2021 - 2022)BARNES 124
04/19/2021 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| Board of Professional Counselors | |
| Board of Veterinary Examiners | |
| HB75 | |
| HB61 | |
| HB85 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | HB 75 | TELECONFERENCED | |
| += | HB 61 | TELECONFERENCED | |
| += | HB 85 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
HB 75-EMPLOYER CONTRIBUTIONS TO PERS
4:04:37 PM
CO-CHAIR FIELDS announced that the next order of business would
be HOUSE BILL NO. 75, "An Act relating to employer contributions
to the Public Employees' Retirement System of Alaska; and
providing for an effective date."
4:05:08 PM
NEIL STEININGER, Director, Office of Management and Budget,
Office of the Governor, introduced HB 75 on behalf of the House
Rules Standing Committee, sponsor, at the request of the
governor. He characterized the proposed legislation as "fairly
narrowly focused" with the intent of giving the state another
tool for its financing of retirement on behalf of state
employees. He said the cap would be removed on public employee
retirement system payroll contributions made by the State of
Alaska as an employer. He said this would continue to fund the
state's obligations to the Public Employees' Retirement System
(PERS) and only employs to the State of Alaska as an employer,
rather than apply to other PERS employers. He said it would not
impact the teachers' retirement system, change any retirement
benefits or employee contributions, or reduce the overall
employer contributions. Instead, he said, it would allow the
state to "fully cost-share" the cost of retirement contributions
for state employees. He said it would reduce general fund
expenditures by approximately $25.7 million in fiscal year 2022.
4:07:11 PM
The committee took a brief at-ease.
4:07:36 PM
MR. STEININGER presented a PowerPoint [hard copy included in the
committee packet] and began on slide 3, "HB75 Background:
Alaska's Retirement Obligations," which read as follows
[original punctuation provided]:
? The PERS unfunded liability was estimated to be $4.6
billion in FY20
? Current annual cost to pay down the unfunded
liability is split between employer contributions and
the state assistance payment, or "on-behalf" payment
o Employer contributions (22%) on employee
salaries mixed fund sources
o On-behalf payments for Municipalities and other
PERS employers 100% UGF
o On-behalf payment for State of Alaska as an
employer 100% UGF
? This bill addresses the on-behalf payment for State
of Alaska as an employer
MR. STEININGER presented slide 4, "State of Alaska PERS On-
Behalf Payments," which read as follows [original punctuation
provided]:
? In 2008, the legislature established a uniform rate
for payroll contributions for all PERS employers 22%
? The State of Alaska is required to pay the
difference between capped employer payroll
contributions and the full actuarial liability (30.11%
in FY22)
? Called the state assistance or "on-behalf"
payment
? For FY22, the total on-behalf payment to PERS is
$193.5m (UGF) ? $95.7m of that amount is made by the
state on behalf of itself
? The remaining $97.8m is made on behalf of 153
other active PERS employers
MR. STEININGER presented slide 5, "HB75 State of Alaska as an
Employer Retirement Obligation Current Law," which displayed
the state payroll contribution of 22 percent of payroll, or
$246.3 million. He said that figure includes $106.3 million
from the unrestricted general fund (UGF); $30.3 million from the
designated general fund (DGF); $73 million from "other" sources;
and $36.8 million from federal sources.
4:11:19 PM
CO-CHAIR FIELDS asked what DGF sources are.
MR. STEININGER replied that DGF sources are any DGF funds that
the state is using for payroll. He said the "on-behalf" portion
of $95.8 million is also from the unrestricted general fund.
4:11:38 PM
MR. STEININGER continued to slide 6, "HB75 State of Alaska as
an Employer Retirement Obligation Proposed Law," which
displayed graphics showing the state payroll contribution of
30.11% of payroll, totaling $342.2 million. The fund sources,
he said, show decrease in funding from UGF and an increase in
all other areas of contribution. He said, "This is really where
the savings from this concept come from, because it comes from
being able to share those costs with these other payers, these
other funds that pay for state employees." He pointed out that
the "other" category includes "capital improvement program
interagency receipts," which are duplicative funds that
represent state employees working on capital projects, such as
Department of Transportation & Public Facilities (DOT&PF)
employees.
4:14:15 PM
REPRESENTATIVE SCHRAGE asked for confirmation that DGF fund
sources can absorb the increased pull of funds under the
proposed legislation.
MR. STEININGER pointed out that initial estimates show that
almost $55 million in UGF would be saved. He said that in terms
of DGF, agencies currently don't collect as much as is spent, so
it doesn't make sense to further draw down the fund. The fiscal
note, he said, swaps DGF with UGF funds to ensure that programs
aren't negatively impacted.
4:15:15 PM
CO-CHAIR SPOHNHOLZ asked for an example of an appropriate DGF
increase.
MR. STEININGER explained that the Alaska Marine Highway System
funds pay for other personnel services, but revenue collections
for the ferry system can't be increased to meet the increased
costs; therefore, he said, the fiscal note must be adjusted. He
said the focus was to remain on areas in which an increase in
revenues could be implemented to reflect the program costs.
CO-CHAIR SPOHNHOLZ summarized her understanding that the
intention is to make sure that no programs are negatively
impacted; if HB 75 passes, she said, a staggered implementation
would allow each program to renegotiate individual contracts.
She pointed out that Mr. Steininger had identified the Alaska
Marine Highway System as a program that uses DGF and asked for
confirmation that he's not proposing a fare increase in order to
reduce UGF spending for PERS.
MR. STEININGER replied that he was only using the ferry system
as an example to show that adding the cost wouldn't be absorbed
within current revenue collections. He said he used it as an
example of an area in which there has been special care to
ensure that programs aren't negatively affected by the proposed
legislation; instead, it's simply a back-end financing change to
allow more revenue collection from the federal government.
CO-CHAIR SPOHNHOLZ asked whether a percentage of the federal
highway funds related to the marine highway system's retirement
match would come from UGF.
MR. STEININGER replied, "That's correct."
4:18:35 PM
REPRESENTATIVE MCCARTY asked for clarification on renegotiating
contracts.
MR. STEININGER responded that the renegotiation would happen
within the cost allocation plan agreements, which aren't
contracts in the procurement sense but with the federal
government.
CO-CHAIR SPOHNHOLZ commented that "grant agreement" might be a
better term than "contract."
4:19:26 PM
MR. STEININGER presented slide 7, "HB75: FY2022 Budget Impact,"
which displayed the budget impact by fund source and by agency.
He pointed out that, since $100 million in state cost is
normally included in the language section of the operating
budget and shifted into agency budgets, it would appear as an
increase in the agency budgets if one were to look at the budget
without adjusting for the shift. He clarified that it's not
actually an increase in true cost to the agency, it's simply
reflecting the cost in the same manner in which it was incurred.
He pointed out that agencies with a large number of positions,
as well as federal programs, would contribute the majority of
UGF savings. He then presented slide 8, "Historical PERS
Contribution Rates," which displayed a timeline showing the
employer rate of 22 percent contribution versus the variable
actuarial rate. He said the volatility of the rate has always
been absorbed within the language section of the budget bill in
the "on behalf" payments, and this volatility would show up
within agency budgets should HB 75 pass. He said the budget
system includes a mechanism to respond to the volatility and
keep it from impacting state programs.
4:21:56 PM
CO-CHAIR SPOHNHOLZ asked why there exists volatility in the
actuarial rate.
MR. STEININGER explained that volatility is primarily affected
by market returns on the fund. The actuarial rate is calculated
by looking at how much money is in PERS; whether the fund has
met, exceeded, or fell short of projections over the past year;
and the projected cost of retirement payments. Once the
unfunded liability is determined, he said, it's amortized over
25 years and the actuarial rate is determined.
CO-CHAIR SPOHNHOLZ asked whether reducing the unfunded liability
would reduce the actuarial rate.
MR. STEININGER responded that there was a large deposit to PERS
in 2015; while the actuarial rate was already trending down, he
said, there was a continued drop after the contribution.
Anything that reduces the unfunded liability, whether it be a
contribution to PERS or a policy change, he said, would help the
actuarial rate.
CO-CHAIR SPOHNHOLZ asked for the amount of the deposit.
MR. STEININGER replied that it was approximately $3 billion.
CO-CHAIR SPOHNHOLZ noted that in 2015 the price of oil was high,
and Senate Bill 21 [passed during the Twenty-Eight Alaska State
Legislature] had not yet reduced state revenues from the oil
industry. She surmised that there is a cost associated with not
addressing the unfunded liability.
MR. STEININGER expressed that the statement was fair. He noted
that there are multiple ways to pay for the state's retirement
obligation.
CO-CHAIR SPOHNHOLZ said that the unfunded liability is $4.6
billion in fiscal year 2020, so there's a gap.
MR. STEININGER replied, "That's correct."
CO-CHAIR SPOHNHOLZ clarified that the unfunded liability is in
addition to the approximately $16 billion owed to the
constitutional budget reserve. She said that while there is
currently a statutory permanent fund dividend on the books,
there is a structural fiscal gap.
4:26:14 PM
CO-CHAIR FIELDS asked for information on any consultations with
public employee unions.
MR. STEININGER replied that unions were consulted and informed
of this policy, and he clarified that HB 75 would not impact
benefits or employee contributions because it's entirely a "back
end" issue. He said the Alaska Municipal League has been
contacted, but this proposed legislation is focused on the State
of Alaska as an employer.
CO-CHAIR FIELDS suggested hearing testimony from the Alaska
State Employees Association.
[HB 75 was held over.]